First, this exchange from CNBC’s Kudlow Report last night:
Kudlow: And also in terms of what President Obama said, he wants government action to close the inequality gap; that was a big part. Another thing he is going to do, he’s got this big mortgage plan where he would refi everybody’s mortgage that is not — they can be under water, but they have virtually no credit standards, probably a 4% interest rate. … Now is that vote-buying? Is that election year vote-buying? Is that something that is going to fix housing?
Romney: Well, let’s see what the plan looks like. If it’s talking about multiple new trillions of dollars of government debt, that is something that is simply unacceptable.
Kudlow: There is a bank tax in there to finance it.
Romney: Again, let’s look at the numbers. Let’s see what kind of tax there is. If you’re talking about refinancing trillions of dollars of debt and the government is now going to be taking over responsibility for those mortgages, that would be a real problem. But let’s look at the details. Clearly, if there is a way of providing a break to homeowners to get lower interest rates, that is something which has always been part of the refinance story. If it can be done in a way that doesn’t add additional government obligation, that’s one thing. If instead it adds trillions of dollars in new debt to the federal balance sheet, that’s a very different thing. What about the investors who own the mortgage-backed securities who have to be repriced lower? They’re going to take a bath, pension funds are going the take a bath. In the speech, he put in one or two sentences about it. Let’s see what it shows. You have apparently more information about it than I do. I want to see what the plan shows, but clearly, you can’t go in and say we’re going to wipe out all the people who invested in mortgages and mortgage-backed securities. A lot of those are banks. Banks in some cases are in trouble already. You don’t want them to have to find themselves in even more distress.
Now, Romney could have said something like, “The way to boost housing is to boost the economy and speed up the foreclosure process so the market can clear.” But he didn’t say that. He said this: “Clearly, if there is a way of providing a break to homeowners to get lower interest rates, that is something which has always been part of the refinance story. If it can be done in a way that doesn’t add additional government obligation, that’s one thing.”
Rather than criticize the general idea of a mass refi plan, Romney chose to criticize Obama’s version of a mass refi plan. And one aspect he doesn’t like, it seems, is how government would refinance mortgages not already owned by the government, such as through Fannie and Freddie, thus taking on new risk and obligation. He doesn’t seem to like the broadness of the Obama plan, given the little we know of it. As Obama said in his SOTU address:
That’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks.
But guess what? Romney economic adviser Glenn Hubbard has co-authored a mass refi plan that doesn’t give “every responsible homewoner” a new low-rate mortgage. But it would if they had a Fannie or Freddie mortgage.
Importantly, it wouldn’t “add trillions of dollars in new debt to federal balance sheet” — as Romney worries with the Obama plan — because the government already backs them through the GSEs. Here’s the core of the Hubbard plan, which might affect 30 million mortgage borrowers:
a) Every homeowner with a GSE mortgage can refinance his or her mortgage with a new mortgage at a current fixed rate of 4% or less, with the rate subject to change up or down with the price of Agency pass-through Mortgage-Backed Securities (MBS). For borrowers with an FHA or VA mortgage, rates would be higher, but these borrowers should be included in any large-scale refinancing program.
b) The homeowner must be current on his or her mortgage or become so for at least three months.
c) NO other qualification or application is required, other than intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).
Hey, that sounds a lot like the Obama plan, except with the GSE limitation.
So does Romney favor a mass refi plan that is a) limited to folks with GSE mortgages since the government already owns the risk, and b) does not include a bank tax? (He also, it should be noted, seems worried about the impact on the owners mortgage-backed securities.) Hopefully, someone at the debate tonight will ask.
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Those who have good credit ought to be able refinance. What is stopping them from refinancing? That is the problem which must be addressed. Those who have poor credit cannot get and should not get another mortgage.
We need a better explanation of the proposed terms of refinancing. Obama and the socialists would require refinancing, and provide government-backed refinancing, without a credit check or proof of job, etc. Those are the same crappy credit standards imposed by HUD in the form of quotas on the mortgage providers and banks.
The quotas were imposed by HUD on Freddie, Fannie, and the banks which wanted to expand. That house of cards of less-than-prime mortgages caused the housing meltdown in the first place, and then caused the worldwide financial market meltdown. HUD’s quota before the collapse was 56% of all new mortgages. It resulted in almost half of all US mortgages being less-than-prime.
More government-required mortgage insanity will only cause more problems.
Housing has been a topic that politicians prefer to avoid when possible, given that there are no easy answers which is typically their specialty. Check out this article, a quick guide to politics and housing in 2012: http://www.homeforsure.com/the-politics-of-housing
They should have done a mass refi plan years ago for responsible homeowners. The market is what it is and people being underwater doesn’t qualify as irresponsible unless EVERYONE buying a house in 2006-7 was supposed to somehow predict a housing crash. I have a very modest three bedroom, 1600 sq. foot home, NO DEBT other than my mortgage, have never missed a payment, have an 800 FICO score and a good paying job. But trying to refinance when $20,000 underwater has been impossible. My banks best offer? Save me $69 a month for closing costs of $8,000! Phuque that and phuque them! They deserve to get screwed. And if it means more RESPONSIBLE, HARD-WORKING, independent minded people (who has never taken a single cent in government help or funding – including my college loans – paid cash) have more money each month to put into the economy…well good!
Come on! Be realistic! He can’t say what you wanted him to say and get elected. Sure, that is the only viable way to get the housing market going again but people don’t want to hear the truth. They want to hear that government is going to take care of them.
That’s why it is important to target this to the homeowners and renters and so on who will be hurt and not helped by this. There are more of the former than the latter.
We want the government to take care of us, specifically. If we aren’t the beneficiaries of a program we might grumble… but if we think we’re going to be hurt by something, boy do we turn out in opposition.
And in the end, I’m not sure Romney has much of a chance anyway with those who would benefit from Obama’s giveaway… they know the Democrats give away more than the GOP. So why not have Romney make a play for the larger group that is in play?
In this political climate of housing recession, the GOP would be nuts to send the tongue tied private equity guy to go up against Obama the Class warfare warrior. 2012 is all about how hard the middleclass is struggling.
I think there is some political hay to be had by coming out against this, and not just the specifics.
Americans are tired of bailouts… and especially of those who contributed to the problem… and especially if they don’t see the benefit helping them in any way.
As structured, the only people who would get a refinancing are those who either have screwed up their credit since their last financing or those who are underwater because they either bought too high or put down too little equity. NOBODY who has behaved qualifies, as they’re already eligible for commercial refinancings.
And this won’t help anyone who has behaved or the economy as a whole. It won’t stabilize housing prices (the relatively little difference in mortgage interest isn’t going to radically increase the number of underwater homeowners who decide to stay in their home). It won’t reduce the backlog of homes on the market. It won’t lead to home builders increasing construction.
It is billions of dollars of government money that is going to people who don’t deserve it and in a way that won’t benefit the masses.
So why not oppose it?
Big deal. He can’t say he’s against it while stumping in a state like Florida.