- The plan helps a broad swath of homeowner
- The plan stimulates the economy
- The plan costs next to nothing
So says the New York Times in U.S. May Back Refinance Plan for Mortgages
The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.Uninspiring Nonsense
One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.
Investors may suspect a plan is in the works. Fannie and Freddie mortgage bonds had been trading well above their face value because so few people were refinancing, keeping returns on the bonds high. But those bond prices dropped sharply this week.
Frank E. Nothaft, the chief economist at Freddie Mac, said the federal action could instill confidence.
"It almost seems to me you want to have some type of announcement or policy, program or something from the federal government that provides that clear signal that we are here supporting the housing market and this is indeed a good time to really consider buying," Mr. Nothaft said.
Quite frankly that is idiotic as one of my readers noted in an email. That government needs to step in and artificially support housing prices is not inspirational.
Moreover, two tax credits that blew up just proved it.
The idea that you can do something at no cost to fix the housing market is pure lunacy. I am not sure which of the following terms applies best
- Holy Grail of Housing
- Free Lunch
- Perpetual Motion Device
- Fountain of Youth
- Pain with No Gain
I like number 1 best, but 1, 2, and 5 are solid choices.
The Keynesian clowns are of course very supportive of the general idea, led this time by Treasury Secretary Geithner and Christopher J. Mayer, an economist at the Columbia Business School.
Mayer says "This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing"
Mayer is obviously another believer in various free lunch ideas that cost nothing but will save housing.
Tom Lawler (on Calculated Risk's site) slammed some of these ideas back in July in Lawler: “Slam-Dunk” Stimulus? MS = Missing Something!!!!
The last few paragraphs of the article are rather interesting.
The government has already encouraged some refinancing through the Federal Housing Administration and through Fannie and Freddie, but participation is limited. For example, the Home Affordable Refinance Program excludes homeowners who owe more than 125 percent of the value of their house. To spur more refinancing, the government may decide to encourage Fannie and Freddie to lift such restrictions.Got That?
But government officials cautioned that Fannie and Freddie do not do the administration’s bidding, even though they are essentially owned by taxpayers.
A broader criticism of a refinancing expansion is that it would not do enough to address the two main drivers of foreclosures: homes worth less than their mortgages, and a sudden loss of income, like unemployment. American homeowners currently owe some $700 billion more than their homes are worth.
Fannie and Freddie are owned by US taxpayers. The Obama administration wants to dump all of these proposals on the backs of taxpayers, perhaps without addressing the problem that "American homeowners currently owe some $700 billion more than their homes are worth."
Supposedly this can be done at "little to no cost".
Obama is either too dumb to see what's going on or he simply does not care what it costs to buy votes. I believe both.
Bank Bailout in Disguise
Depending on precisely how the proposal is implemented, the effect may be to take poor performing loans off the balance sheets of banks and hedge funds and dump the risks squarely on the backs of taxpayers via Fannie and Freddie.
It's no wonder Geithner supports it.