It's a couple of years late, but the administration is considering new efforts to
strengthen the housing market and help underwater homeowners. The constraints, reports the
NYT, are large: "[P]lans 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.
The rental program has already been announced as approved by the administration. But the refinancing options are potentially far more important because of the opportunity to actually prevent foreclosures, something the previous HAMP effort has been a huge failure at.
According to David Dayen, there are "$2.4 trillion in loans under the control of the GSEs which have an interest rate of 4.5% or above. The target for savings out of this deal is around $85 billion a year [...]" That $85 billion could be effective stimulus, allowing homeowners some breathing room. This would only help homeowners with Freddie and Fannie backed mortgages, so it doesn't have the kind of reach needed to really solve the problem. The advantage it would have is not having to be passed by Congress. And for this administration, not having to take on Wall Street.
Now, if President Obama was willing to take on the banks, he could use the more than $20 billion left over in unused HAMP funds in a new Home Owners' Loan Corporation (HOLC) sort of program, where the government bought the underwater mortgages at market value and refinance them at market value and at today's lower interest rates. Hell, at today's lower interest rates, the government should be borrowing the money to do precisely that.
It'd sure be a better use for the unused HAMP money than what Andrea Risotto, a Treasury spokeswoman, told the NYT reporters would happen with it: "[W]hatever was left would be used to reduce the federal deficit." What a terrible waste that would be.
A HOLC program would mean a haircut for the banks, but they pretty much owe us that, having, you know, wrecked the global economy.