Economics

Yes, Obama really is considering a mass refi plan

I’m amazed there’s so much skepticism about my blog post suggesting the Obama White House would consider a $1 trillion, mass mortgage-refinancing plan through Fannie Mae and Freddie Mac. There really shouldn’t be. Here’s why:

1. The White House gave a total non-denial denial to Bloomberg: “The White House has no plans for a new mass mortgage refinancing program, an administration official with knowledge of the matter said.”

2. Obviously the politics are far from clear cut. Yes, the Tea Party folks and like-minded homeowners everywhere would probably see the plan as a government bailout of people who made dumb financial decisions. Yet this is also an administration that hates being known as one that bailed out Wall Street but not Main Street. Again, here is Jaret Seiberg of Guggenheim Securities’ Washington Research Group (bold for emphasis):

As we discussed last week, we believe the administration could recess appoint its own official to run FHFA in order to get the agency to run a refinancing program similar to what Federal Reserve officials want to see. Such a program—in our view—would be limited to GSE-backed loans. The idea would be to create a streamlined refinancing for any borrower with a GSE loan. … We acknowledge that there is political risk for the president to put his guy in charge of FHFA. But our view is that the political benefits of more refinancing relief would outweigh the damage of political attacks over the move.

3. That’s right, the Federal Reserve and Ben Bernanke suggested a similar plan in the central bank’s new white paper on housing:

Nonetheless, more might be done—for example, reducing even further or perhaps eliminating remaining LLPAs for HARP refinances (again, on the rationale that the GSEs already carry the credit risk on such loans); more comprehensively reducing putback risk; or further streamlining the refinancing process for borrowers with LTVs below 80 percent, a potentially large group of borrowers who face some (though not all) of the same obstacles confronting high-LTV borrowers. Fannie Mae has reduced putback risk for all loans (including those below 80 percent LTV as well as those above 80 percent LTV), while Freddie Mac has reduced putback risk for loans above 80 percent LTV but not those below 80 percent LTV. Harmonizing traditional refinancing programs for borrowers with LTVs less than 80 percent, so that these programs become operationally consistent with HARP, could facilitate more refinancing among this group of borrowers.

4. Also last week, Bill Dudley, the head of the New York Fed, argued for government intervention in the housing market to boost the economy. What sort of intervention? Well, one option would be … more refinancing through Fannie Mae and Freddie Mac:

Increasing refinancing would support the housing market by promoting aggregate demand and employment. Refinancing creates additional cash flow for borrowers to absorb any adverse income shocks and this reduces the likelihood of default, distress sales, and foreclosures.

However, there are significant obstacles to refinancing in current circumstances. Declines in home equity have been aggravated by tighter standards, high refinancing fees, burdensome administrative processes, and legal risks to the lenders refinancing the loan.

Because the taxpayer, via Fannie and Freddie, is already exposed to the risk of conforming loans defaulting, it makes no sense to make it expensive or difficult for borrowers with these loans to refinance. … I would like to see refinancing made broadly available on streamlined terms and with moderate fees to all prime conforming borrowers who are current on their payments. This could substantially increase the number of refinancings.

5. And as I said in the original post:

My sources tell me the Obama administration has been eager to implement just such a plan, but needs to have its own man heading the FHFA to make it happen. The plan would be modeled after one originally devised by Columbia University economists Glenn Hubbard (a campaign adviser to Mitt Romney and AEI visiting scholar) and Christopher Mayer.

Connect the dots, people. The White House wants it. Bernanke wants it. Don’t count out mass refi plan this election year.

2 thoughts on “Yes, Obama really is considering a mass refi plan

  1. Sounds good, but if they end up backing almost all the mortgages and they decide in favor of the Communist Manifesto where NOBODY owns property, that could make it easier for them to accomplish that.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>