Now this would be a change I could believe in:
Bill Gross, who runs Pacific Investment Management Co.’s $239 billion Total Return Fund, said that policymakers “should quickly re-engineer” a plan that would refinance all non-delinquent mortgages backed by the federal government. The rate on a 30-year fixed-rate mortgage averaged a record-low 4.44 percent in the week ending Aug. 12, according to taxpayer-owned mortgage giant Freddie Mac.
Taxpayers guarantee the mortgages of 37 million households, or two-thirds of all homeowners with a mortgage, according to a July 29 note by David Greenlaw, Morgan Stanley’s chief U.S. fixed-income economist. That includes government agencies like the Federal Housing Administration as well as twin behemoths Fannie Mae and Freddie Mac. Greenlaw estimates about 18.5 million taxpayer-backed mortgages are at rates higher than 5.75 percent interest.
By refinancing those mortgages at current, lower rates, Greenlaw believes those homeowners would save $46 billion a year. Gross said the refi scheme would spur some $50-60 billion a year in new consumer spending and raise home prices between 5-10 percent. Forecasters, including Fannie Mae, say home prices are set to decline the rest of the year and into 2011. Former Federal Reserve Chairman Alan Greenspan said this month that a so-called double-dip recession is possible “if home prices go down.”
via Famed Investor Bill Gross Calls For Massive Taxpayer-Backed Mortgage Refinance Initiative.
Ezra “don’t call me JD from Scrubs” Klein has more:
The politics of this plan are interesting: The difficulty with most housing interventions is that they help the family that took on too much housing debt, and that makes their neighbors — who didn’t take on too much housing debt — angry. This plan, by contrast, helps the people who aren’t behind on their mortgages. It helps the people who’ve been doing everything right, but are nevertheless stuck in a crummy economy.
I haven’t been able to find a re-fi deal for our house. Since the bottom dropped out of real estate here in the Tampa Bay area, my loan to value ratio isn’t good enough to get anything less than the 5.75% I have now. I’m not behind on mine so none of the other plans had any impact on our household. This would definitely inject some liquidity into my personal economy.
[...] a lot like something I heard before here. I still think it’s a great idea and would stimulate the economy. Op-Ed Contributors – [...]
Seems to me that the bailout billions, if necessary, might have been better aimed at the core of the problem (residential mortgages) rather than the big financial players that were collateral damage. I mean, the “instruments of financial mass destruction” blew up because the mortages they were predicated on blew up.
If we aimed the stimulus at struggling homeowners* the Wall Street tranchemongers would be in better shape but not vice versa.
* and, say a solar, wind, or hydrogen infrastructure. Don’t get me started!