First, this exchange from CNBC’s Kudlow Report last night:
Kudlow: And also in terms of what President Obama said, he wants government action to close the inequality gap; that was a big part. Another thing he is going to do, he’s got this big mortgage plan where he would refi everybody’s mortgage that is not — they can be under water, but they have virtually no credit standards, probably a 4% interest rate. … Now is that vote-buying? Is that election year vote-buying? Is that something that is going to fix housing?
Romney: Well, let’s see what the plan looks like. If it’s talking about multiple new trillions of dollars of government debt, that is something that is simply unacceptable.
Kudlow: There is a bank tax in there to finance it.
Romney: Again, let’s look at the numbers. Let’s see what kind of tax there is. If you’re talking about refinancing trillions of dollars of debt and the government is now going to be taking over responsibility for those mortgages, that would be a real problem. But let’s look at the details. Clearly, if there is a way of providing a break to homeowners to get lower interest rates, that is something which has always been part of the refinance story. If it can be done in a way that doesn’t add additional government obligation, that’s one thing. If instead it adds trillions of dollars in new debt to the federal balance sheet, that’s a very different thing. What about the investors who own the mortgage-backed securities who have to be repriced lower? They’re going to take a bath, pension funds are going the take a bath. In the speech, he put in one or two sentences about it. Let’s see what it shows. You have apparently more information about it than I do. I want to see what the plan shows, but clearly, you can’t go in and say we’re going to wipe out all the people who invested in mortgages and mortgage-backed securities. A lot of those are banks. Banks in some cases are in trouble already. You don’t want them to have to find themselves in even more distress.
Now, Romney could have said something like, “The way to boost housing is to boost the economy and speed up the foreclosure process so the market can clear.” But he didn’t say that. He said this: “Clearly, if there is a way of providing a break to homeowners to get lower interest rates, that is something which has always been part of the refinance story. If it can be done in a way that doesn’t add additional government obligation, that’s one thing.”
Rather than criticize the general idea of a mass refi plan, Romney chose to criticize Obama’s version of a mass refi plan. And one aspect he doesn’t like, it seems, is how government would refinance mortgages not already owned by the government, such as through Fannie and Freddie, thus taking on new risk and obligation. He doesn’t seem to like the broadness of the Obama plan, given the little we know of it. As Obama said in his SOTU address:
That’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks.
But guess what? Romney economic adviser Glenn Hubbard has co-authored a mass refi plan that doesn’t give “every responsible homewoner” a new low-rate mortgage. But it would if they had a Fannie or Freddie mortgage.
Importantly, it wouldn’t “add trillions of dollars in new debt to federal balance sheet” — as Romney worries with the Obama plan — because the government already backs them through the GSEs. Here’s the core of the Hubbard plan, which might affect 30 million mortgage borrowers:
a) Every homeowner with a GSE mortgage can refinance his or her mortgage with a new mortgage at a current fixed rate of 4% or less, with the rate subject to change up or down with the price of Agency pass-through Mortgage-Backed Securities (MBS). For borrowers with an FHA or VA mortgage, rates would be higher, but these borrowers should be included in any large-scale refinancing program.
b) The homeowner must be current on his or her mortgage or become so for at least three months.
c) NO other qualification or application is required, other than intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).
Hey, that sounds a lot like the Obama plan, except with the GSE limitation.
So does Romney favor a mass refi plan that is a) limited to folks with GSE mortgages since the government already owns the risk, and b) does not include a bank tax? (He also, it should be noted, seems worried about the impact on the owners mortgage-backed securities.) Hopefully, someone at the debate tonight will ask.