4 percent mortgage refinance plan gaining traction

A mortgage loan refinance document sits atop a desk. A pair of eyeglasses rest on top of the document.

Underwater homeowners are waiting for a better mortgage refinance plan. (Photo Credit: CC BY-SA/Colin/Flickr)

Lawmakers on Capitol Hill have struggled to devise a mortgage refinance plan that will help struggling homeowners, stimulate the economy and leave only a small footprint on the nation’s budget. The New York Times reports that the Obama administration is putting the final touches on a new plan that would allow millions of homeowners with government-backed mortgages to refinance at 4 percent.

Mortgage refinance: Stimulus through reduction

The existing theory is that by lowering homeowners’ mortgage bills, that money will be spent elsewhere, thus stimulating the economy. While this may seem like the pill America needs, regulators in charge of oversight for large-scale mortgage financiers like Fannie Mae and Freddie Mac stand in opposition, as do mortgage bond investors. A surge in home refinancing would send the mortgage bond returns for those giants downward. Bond prices are already down in anticipation of the Obama administration’s 4 percent plan.

In addition to the low-rate mortgage refinance plan on the table, the Times reports that a home rental program is also in the works. The underlying point would be to shore up housing prices by staunching the flow of foreclosed homes that hit the market. Currently, the Federal Housing Finance Industry is soliciting ideas from the private sector for the home rental program.

“The FHFA and (mortgage enterprises) seek input on possible pooling of real estate owned properties in situations where such pooling, combined with private management, may reduce enterprise credit losses and help stabilize neighborhoods and home values,” said FHFA Acting Director Edward J. DeMarco.

Homeowners could save $85 billion a year

Liberal estimates of just how much impact Obama’s 4 percent mortgage refinance plan could have on U.S. homeowners range toward $85 billion annually. By providing a bridge for homeowners previously unable to refinance because of being underwater or having credit problem, the 4 percent plan will send shock waves through the refinance market. Once the government determines exactly how such a program would work, political experts predict that the Obama administration will feature it as a feather in the cap come the 2012 election. It may be the only option available for major economic change, considering the wide path of resistance that exists for a new stimulus.

Critics of a mortgage refinance expansion claim that it would not do enough to aid consumers whose homes are worth less than their mortgages. Underwater U.S. homeowners are currently more than $700 billion below the water line. Also, homeowners who face unemployment would still be beyond most proposed aid.

Refinance options if you’re upside down on your mortgage


Federal Housing Finance Agency

New York Times


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