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?