Obama slips in a nugget of hope for easier mortgage refinancing
If you left the TV room briefly in the midst of President Barack Obama's speech Thursday night unveiling his $447 billion jobs plan, you might have missed a nugget of good news for homeowners.
But it's only a nugget so far.
The president said the administration will "work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4%."
This step, he said, "can put more than $2,000 a year in a family's pocket and give a lift to an economy still burdened by the drop in housing prices."
That was it — no details.
Just the promise that more "responsible homeowners" might soon be able to lower their monthly mortgage payments and put more of the green stuff to work for themselves.
White House officials told Reuters that talks are under way with Fannie Mae and Freddie Mac – the two government-owned companies that buy many of the nation's home loans.
The president's announcement came after weeks of speculation that he wanted the government to take another crack at helping homeowners who are stuck in expensive mortgages because they don't have enough equity in their homes to qualify for a new, cheaper home loan.
Obama launched the Home Affordable Refinance Program in 2009, predicting it would help 4 million to 5 million Americans who were current but upside down on their mortgages.
But through June of this year, HARP had reached just 838,000 borrowers.
Last week, a top Federal Reserve official said the fact that relatively few homeowners have been helped by HARP suggests "frictions" that impede refinancing need to be reexamined.
One of those frictions, said Federal Reserve Governor Elizabeth Duke, is the up-front fees imposed by lenders that add thousands to the cost of refinancing and discourage cash-strapped borrowers from going after lower interest rates.
Another friction has to do with insurers who won't provide private mortgage insurance for refinanced home loans with little or no equity.
Despite record low interest rates, refinancing applications have declined for three straight weeks recently and are more than 35% below levels at this time last year, according to the Mortgage Bankers Association's latest survey, released Sept. 7.
This month, Columbia Business School professors Alan Boyce, Glenn Hubbard and Chris Mayer proposed an expansive streamlining of refinancing for those with government-backed mortgages.
The profs said about 25 million borrowers could save as much as $70 billion a year — most of it by those earning less than $70,000 a year — if they were allowed to easily refinance mortgages at current low rates.
Other experts disputed the benefits of such a broad program.
Writing for Bloomberg.com, Harvard University economics professor Ed Glaeser said any help to borrowers would be spread over many years while investors, banks and taxpayers would take an immediate hit.
Glaeser also argued that lowering the interest rates would not fix weaknesses in the housing market or reduce foreclosures by much.
Congressional budget analysts came to a similar conclusion, saying in a new report that easing the way for refinancing would do little for the overall market.
"Although such a program would benefit borrowers and would lower federal guarantee costs, it would be costly to mortgage investors," the Congressional Budget Office report said.
The CBO said a large-scale program could rewrite 2.9 million mortgages, prevent just 111,000 defaults and provide $7.4 billion in savings for borrowers in the first year.
But private investors could lose $13 billion to $15 billion, because home loans held by bondholders would be paid back early.
Government agencies that hold those mortgages — the Treasury Department, Fannie Mae, Freddie Mac and the Federal Reserve — would lose another $4.5 billion.
And while there would be savings of $3.9 billion for Fannie Mae, Freddie Mac and the Federal Housing Administration, the plan would end up costing the government $600 million, the CBO concluded.
With all those big numbers flying around, all we can do is wait and see what the administration can wrangle out of the guys holding all the mortgage cards — Freddie, Fannie and their regulator, whose job, after all, is to protect the agencies' interests, not homeowners'.
"We're hopeful that over the next ... several weeks that we will have progress in that area," a White House official told Reuters.
Plenty of other folks hope so, too.