Team Obama may take yet another stab at dealing with the aftermath of the housing collapse. The WSJ’s Nick Timiraos has the deets:
The Obama administration is considering expanding its mortgage-refinancing programs to include borrowers whose mortgages aren’t backed by the government and who owe more than their homes are worth, according to people familiar with the discussions. Such a move would benefit borrowers and provide a boost to the economy by unleashing cash that homeowners could spend elsewhere. But one proposal being considered would also transfer potentially riskier loans held by private investors into the taxpayer-supported mortgage giants Fannie Mae and Freddie Mac.
Analyst Jaret Seiberg of the Washington Research Group has his doubts:
We believe there are low odds for legislation that would permit Fannie and Freddie to refinance borrowers in non-agency mortgages. We question if House Republican leaders would even bring up such a bill up for a vote as this would shift to taxpayers credit risk now held by the private sector. That is something House Republicans are unlikely to stomach. We even question if one can get the 60 votes needed to advance this legislation in the Senate. The President in his State of the Union speech a year ago proposed a similar program using FHA. That legislation never even made it to a vote in the full Senate or House.
But Timiraos also mention, dare I say it, a Plan B to help underwater borrowers:
A second proposal under discussion by the administration would reduce rates for underwater borrowers through mortgage modifications. The proposal wouldn’t require legislation, and would allow borrowers to qualify for a reduced rate under the existing Home Affordable Modification Program, or HAMP. Currently, homeowners can have their loans reworked through HAMP only if their mortgage company deems that they are at “imminent” risk of defaulting. The new proposal would redefine “imminent default” to include borrowers who are deeply underwater on their mortgage.
Now, this one is a bit more intriguing because it would not require Congress to play ball. But Seiberg still isn’t buying this one, either:
Yet we question if investors would permit servicers to conclude that a borrower deserves a HAMP modification simply because they are underwater on their loan. As a result, litigation would seem likely as servicers are required to follow the servicing agreements on how to deal with troubled borrowers. Servicers do not have carte blanche in this space. We also believe House Republicans would object strongly to using HAMP in this manner. This helps explain why House Republicans included an elimination of the HAMP program as part of their fiscal cliff package. Our bottom line is that the administration could attempt to use HAMP in this manner, but we question if the effort would succeed.
It would not have surprised me if Mitt Romney, had he won, would have proposed some sort of housing plan. Romney economic adviser Glenn Hubbard, along with colleague Christopher Mayer at Columbia University, has devised a plan where every homeowner with a GSE mortgage could refinance his or her mortgage with a new mortgage at a current fixed rate of 4.20% or less. Nearly $4 trillion of mortgages could be refinanced, helping roughly 30 million borrowers save $75 billion to $80 billion a year. As Hubbard and Mayer see it, it would be like a long-lasting tax cut for these 25 or 30 million American families.
But that would have been a “Nixon to China” move that only a GOP president could pull off with congressional Republicans. At this point, the only thing helping homeowners is the slowly recovering economy and perhaps a bit more inflation to raise their nominal incomes — and housing prices — and reduce their debt burden.