Hat tip to Susie for sending this in from the nytimes.com:
The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.
One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.
Administration officials said on Wednesday that they were weighing a range of proposals, including changes to its previous refinancing programs to increase the number of homeowners taking part. They are also working on a home rental program that would try to shore up housing prices by preventing hundreds of thousands of foreclosed homes from flooding the market. That program is further along — the administration requested ideas for execution from the private sector earlier this month.
But refinancing could have far greater breadth, saving homeowners, by one estimate, $85 billion a year. Despite record low interest rates, many homeowners have been unable to refinance their loans either because they owe more than their houses are now worth or because their credit is tarnished.
Exactly how a refinancing plan might work is still under discussion. It is unclear, for example, whether people who are delinquent on their mortgages would be eligible or whether lenders would administer it. Federal officials have consistently overestimated the number of households that would be helped by their various housing assistance programs.
A working group of housing experts across several federal agencies could recommend one or both proposals, or come up with new ones. Or it might decide to do nothing.
Investors may suspect a plan is in the works. Fannie and Freddie mortgage bonds had been trading well above their face value because so few people were refinancing, keeping returns on the bonds high. But those bond prices dropped sharply this week.
Administration discussions about housing proposals have taken on added urgency this summer because the housing market is continuing to deteriorate. On Wednesday, the government said that prices of homes with government-backed mortgages fell 5.9 percent in the second quarter from a year earlier, the biggest decline since 2009. More than one in five homeowners with mortgages owe more than their homes are worth. Some analysts are now predicting waves of foreclosures and a continuing slide in home prices.
There is not much time to help the market before the 2012 election, and given Congressional resistance to other types of stimulus, housing may be the only economic fix in reach. Federal programs to assist homeowners have been regarded as ineffective so far, and they are complex.
Some economists say that with housing prices and interest rates at affordable levels, only fear is keeping consumers out of the market. Frank E. Nothaft, the chief economist at Freddie Mac, said the federal action could instill confidence.
“It almost seems to me you want to have some type of announcement or policy, program or something from the federal government that provides that clear signal that we are here supporting the housing market and this is indeed a good time to really consider buying,” Mr. Nothaft said.
The refinancing idea has been around since at least 2008, but proponents say the recent drop in interest rates to below 4 percent may breathe new life into the plan.
“This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,” said Christopher J. Mayer, an economist at the Columbia Business School. “So I think this is low-hanging fruit.” Mr. Mayer and a colleague, Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, proposed an early version of the plan.
The idea is appealing because it would not necessarily require Congressional action. It also would not tap any of the $45.6 billion in Troubled Asset Relief Funds that was set aside to help struggling homeowners. Only $22.9 billion of that pool has been spent or pledged so far, and fewer than 1.7 million loans have been modified under federal programs. But Andrea Risotto, a Treasury spokeswoman, said whatever was left would be used to reduce the federal deficit.
A broader criticism of a refinancing expansion is that it would not do enough to address the two main drivers of foreclosures: homes worth less than their mortgages, and a sudden loss of income, like unemployment. American homeowners currently owe some $700 billion more than their homes are worth.
There’s nothing that congress can pass that will be effective. It’s just going to take time to clear the market and allow new home buyers to adjust to needing a sizable down payment and having an emergency fund. People just don’t want to be a missed paycheck or a blown water heater away from not being able to make the mortgage payment anymore. It’s going to take some time to save in order to go from $5000 in the bank, I can buy a house, to I should really have $50,000 in the bank to buy a house.
Those with money are buying houses, those without money aren’t. Fortunately sellers seem content to wait for the buyers to save some money, otherwise we’d see prices falling further.
Almost there. What we need is a low rate mortgage for home buyers and refi’s for existing owners WHO HAVE PAID THEIR MORTGAGES. Refi’s for underwater mortgages are fine, so long as the homeowners ARE PAYING THEIR MORTGAGES. That will make it possible for the REO and defaulted properties littering the landscape to be bought by people who won’t be coming back for more “restructuring” because the values of their homes dropped another $5k this month.
This is half of a good plan. What’s needed are low rates for QUALIFYING new buyers and refi’s for existing owners, including those who are underwater, IF THEY ARE PAYING THEIR MORTGAGES. That would put money into the economy and put people into current and upcoming defaults who will not be walking away or crying out for new loan restructurings because their home values dropped another $5k.
Comrade Herr Goebbels would be Proud of this used-dog food…
Truth is Treason in the Empire of LIES.
Change you can Believe in.
A few years ago on Piggington, someone said “Foreclosures are not the problem. They are the solution.” It is still true today.
If we greased the process of foreclosure to make them happen as fast as possible, eventually, we wouldn’t have any more homes to foreclose on and we would have many people who are no longer upside-down on their mortgages.
The gubmint is soooo backwards on this plan.
I’m not sure about allowing people to refinance because all the people who have bonds that finance these mortgages will get shafted of their money.
If the bond holders choose to, though, then allowing people to refinance automagically would be fine with me, but not because the government mandated it.
Some bond holders would be ok with getting less money if they less likely to risk loosing the principle when someone forecloses.
Yet another example of politicians feeling the necessity to “do something”, even though everything they do is counterproductive.
As long as the bonds are being paid off and not defaulting, the only thing the bond holders are losing is the profits they were anticipating. No one who loans money or buys a loan ever gets any guarantee that the borrower will not pay off the note early if another loan with better terms comes along.
Lenders can always offer to renegotiate the rate of a loan if they really want to hang onto their existing borrowers.