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Potential Refinance Plan for Mortgages
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The housing market continues to be pretty weak, as it has been for several years, and it appears that the Obama administration is considering proposals that would allow homeowners with government-backed mortgages to refinance at today’s interest rates, which are historically low at around 4%. The idea behind this move is that by allowing homeowners to refinance, it lowers the monthly cost of those mortgages and frees up household income to be spent elsewhere – which would have a stimulative effect on the economy (consumer spending is a big piece of that).
It’s still extremely early in the process and the proposal would have to overcome resistance. It’s an idea that has been around for quite some time too, dating back to 2008, and is appealing because it shouldn’t increase the deficit and it doesn’t require Congress to do anything.
No plan is without cost though and the losers would be the holders of those mortgages. If I borrowed $100 from you and promised that I would pay you $110 in a year, you’d lend it to me because a one year, 10% loan, fits your investing plan. If in a month I were to come back and give you $101, I mess up your plans because now you have to find a new investment a few months early.
Also, this plan doesn’t help people who are underwater because you aren’t able to refinance for more than the value of your home.
I think it’s good that we’re talking about ways to stimulate the economy that don’t add to the deficit.
Thoughts on this?
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They’ve been doing this through the HARP and HAMP programs since early 2009 – how is what’s being proposed different?
Many of those programs simply capitalized your fees or added to the term of your loan. Not many resulted in decreased rates or principal forgiveness.
“… I would pay you $110 in a year, you’d lend it to me because a one year, 0% loan, fits your investing plan. If in a month I were to come back and give you $101…”
That 0% loan should say 10%.
Yikes… duh.
How would this not affect the deficit? If the current mortgage holders are paying more than 4% and can’t refinance, it suggests that they represent a risk greater than 4% to current mortgage lenders.
If the government says, forget the risks we’ll loan them the money at 4%, it suggests that the performing loans won’t be enough to make up for the non-performing loans going forward. When this happens they’ll inevitably want to increase deficit spending to make up for the difference.
Don’t get me wrong, I could get behind a plan like this, but you certainly aren’t telling the whole story. You’ve ignored the additional risk they’d be taking on by allowing those who can’t get a 4% loan from a bank to refi at 4% via the government program.
Surely you understand this. Why didn’t you mention it?
You don’t do Obama any favors when you explain his proposals while blatantly leaving out the risky parts. Just come out with it and say what we both believe…
That the banks have gone from being too lenient when it comes to risk to being to risk averse. That the performing 4% loans will make up for the non-performing 4% loans. But if the performing loans don’t make up for the non-performing ones the government (taxpayer) will be on the hook for the difference.
And by the way… is this turing into a political blog?
I hope not. I don’t come to the blog for that.
What was your “considering proposals” link supposed to go to?
I think if you’re going to allow homeowners of government backed loans to refinance, then you should let students who have government backed student loans to refinance at today’s rates.
What does one have to do with another?
Nothing, but as generations of grads come with large student loan debts, it will only compound the problem they will have later in life when they buy too big of a house and can’t refinance when they get in trouble.
Just a statement, I don’t think student loans need refinanced.
I’m at 4.5% and happy with mine FYI