January Surprise: Is Obama preparing a trillion-dollar, mass refinancing of mortgages?

This could be just the beginning. If President Barack Obama’s legally dodgy appointment of Richard Cordray to head the consumer finance agency should stick, it may open the door to more such actions. Here’s Jaret Seiberg of the Washington Research Group:

To us, the most important takeaway from a recess appointment of Cordray is that the President could use this same maneuver to put a housing advocate in charge of FHFA.

And why is that important? The Federal Housing Finance Agency is the regulator and conservator of Fannie Mae and Freddie Mac. And the FHFA currently has an acting director, Edward DeMarco. If Obama replaces him with a “housing advocate” via the same recess appointment process, here’s what might happen next, according to Seiberg:

That could lead to a mass refinancing program for agency-backed mortgages that would go well beyond the existing HARP program. That could hurt agency MBS pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.

Indeed, my sources tell me the Obama administration has been eager to implement just such a plan, but needs to have its own man heading the FHFA to make it happen. The plan would be modeled after one originally devised by Columbia University economists Glenn Hubbard (a campaign adviser to Mitt Romney and AEI visiting scholar) and Christopher Mayer. In recent congressional testimony, Mayer described how the mass refinancing plan would work:

Under our plan, every homeowner with a GSE mortgage can refinance his or her mortgage with a new mortgage at a current fixed of 4.20 percent or less. … To qualify, the homeowner must be current on his or her mortgage or become so for at least three months. … Other than being current, we would impose no other qualification or application, except for the intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).

Mayer estimates that some $3.7 trillion of mortgages would be refinanced. That’s right, this would be the Mother of All Mortgage Refinancing Plans. It would help roughly 30 million borrowers save $75 billion to $80 billion a year. As Mayer puts it: “This plan would function like a long-­lasting tax cut for these 25 or 30 million American families.”

On his website, Hubbard says the plan would have an immediate fixed cost to the government of $121 billion $242 billion with half that cost split equally between the government and lenders. And he calculates the economic impact as follows:

1. We estimate that 72 percent of owner occupant homeowners would be eligible to refinance at no cost to them. Their monthly mortgage payments would fall by an average of $355, for a total national fiscal injection $7.1 billion each month.

2. The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year.

3. The macroeconomic stimulus effect should also include an additional housing wealth effect. At the low end of our estimates, improved mortgage market operations would reduce house price declines by 10 percent. With an estimated aggregate housing valuation of about $18 trillion, housing wealth would increase about $1.8 trillion relative to what it might fall to without this program. If we assume a relatively low marginal propensity to consume out of housing wealth of 3.5 percent, U.S. consumption would rise by $63 billion relative to what would otherwise have occurred.

4. Combining these estimates gives a total macroeconomic stimulus of as $118 billion per year in lower mortgage payments and any new consumer spending due to a housing wealth effect. In addition to the direct macroeconomic stimulus, jump-starting the stalled housing market will increase employment in a variety of industries that depend on housing transactions (mortgage and real estate brokers, home supply companies, moving companies, etc.) as well as increase the efficiency of the labor market by reducing impediments to households moving to take another job.

Bottom line: Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus—as measured over a decade—that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Cash in their pockets. Imagine the electoral impact on key states, such as Florida, suffering from both high unemployment and devastated housing markets.

And the beauty part for Obama? He wouldn’t need approval from Congress to do it. Even though many Republicans would scream that the plan would reward irresponsible homeowners who took on too much leverage—indeed, talk of a housing bailout is what launched the Tea Party movement—they probably couldn’t stop it. And Hubbard already has an answer to the moral hazard issue: “This proposal requires borrowers to give up a share of future appreciation in order to participate. Lenders must eat a portion of the losses as well. Everyone gives a little bit.”

The 2012 battle for the White House is looking razor close. A mass refinancing plan might be enough to tip it to Obama.

245 thoughts on “January Surprise: Is Obama preparing a trillion-dollar, mass refinancing of mortgages?

  1. Will this eventually raise our Federal debt by a trillion dollars since Fannie Mae and Feddie Mac are owned by the US government. If so, this should be quite a fight to raise the debt limit but that may not happen until after the election. Nice Mr. President!

    • The author fails to contemplate the financing, doesn’t he?

      Fannie and Freddie debt wouldn’t require a ceiling increase. What they would require is SELLING ALL THAT PAPER TO THE MARKET. I suppose Bernanke could buy it up — allowing Fan/Fred to buy the old paper (replacing it with the 4.2%-and-under).

      Would the market absorb that? What about rates? There’s about $10 trillion in US debt held by the public and another $5 trillion in Fan/Fred debt outstanding (backed explicitly as of 2008). Could the government sell $3.7 trillion in new Fan/Fred debt on top of that without raising ALL long rates…? NB: Fannie bonds dropped a bit (yield up) the moment they announced “possible changes to HARP”….

    • OMG — Fannie and Freddie are not owned by the government — they are privately owned with government guarantees, otherwise called a quasi-publicly sponsored entity. The debt will not be raised and the debt limit has nothing to do with any future stimulus — the debt is DEBT — we already owe it. Must everyone be so STUPID — turn off Fox News — they are filling your brains with lies and mis-information about basic facts.

      • You are the idiot (your choice of words).

        Each year some of our existing debt is refinanced because over a long period of time our Government has shortened the average maturity of the outstanding debt to reduce current interest expense.

        In other words instead of locking in the current low rates like corporations and individuals the Government has created a scenario where borrowing costs will go up when interest rates rise.

        The debt that has to be refinanced each year is of course in addition to new debt needed to finance the deficit.

        But lets have more Government.

  2. The thirty and under generation had better wake up and smell Obama’s deceit…they after all are going to be the ones paying for all of Obama’s stimulus programs and the trillions$ debt that both Bush and Obama as well as the big government progressives both Democratic and Republicans have racked up. All of these turkeys have sold out the younger generation.

    • I do not believe your assertion is correct. If people have more money in their pockets and a reasonable interest rate, the children as heirs could potentially benefit from increased equity in their parents homes. Also, the economic crisis will end and this stimulus comes at the expense of the banks, rather than for the benefit of the banks. The economy is complex but using old and tired sound bites is not going to help the economy. The deceit was on the part of the banks, financial institutions, the deregulation of both, fraudulently high rating for financial products by the ratings agencies, Fannie and Freddie and all those in the government that knew what was going on. The only way to repair this damage is to make this happen. I do not think giving up a portion of future equity in the property is appropriate, however. The banks have made billions of dollars, a homeowner can certainly make tens of thousands or even hundreds of thousands without being penalized unless the CEOs and boards, traders and ratings agencies will be prosecuted for their crimes and made to pay back the citizenry.

  3. “That could hurt agency MBS pricing and result in higher financing costs going forward.”

    Translation: higher interest rates for new mortgages. With many under 30 already jobless or earning incomes lower than their parents did at the same age (when adjusted for inflation), this will only hurt them even more. This plan only delays the inevitable correction in housing prices that WILL eventually happen. I don’t care how many economists say otherwise, things were out of whack and they will return to normal eventually. Housing prices are a function of rent and the income of the buyer. I can still rent a nicer place than I can buy, and my income is not sufficient to buy what I could rent. See how that works? I’m not going to go buy some idiot boomer’s house because of this plan, so the increase in value that Hubbard mentioned is an illusion. Boomer bought more than he could afford, re-financed to buy a car, re-financed again to remodel (which “increased” the home’s value even more), and then re-financed again to send the kiddies to get an eduction they could have received for free on Wikipedia.

    The real solution to this problem is to step out of the way and let the market work. Eventually, prices will once again fall in line with incomes, and buyers (like me) will come out of the woodwork. Until then I’ll be just fine in my rental – it’s much nicer than what I could afford to buy, and cheaper – plus I don’t waste money on interest, maintenance, etc.

    Oh, and if you have a mortgage, you are not a homeowner. You’re a debtor. The bank owns the home, and once you pay it off, guess what? You still have to pay property taxes. So you’re still not really living free and clear.

    • The GSEs are toast. In the short run (3-6 years) this will have no effect on pricing since rates are already so low. If they go lower investors will have much larger problems to worry about. In the long run the GSEs are going to be broken up and sold off with no government guarantees, so any premium pricing for extraordinary refinancing programs will be moot.

  4. “This could be just the beginning. If President Barack Obama’s legally dodgy appointment of Richard Cordray”

    I couldn’t make it past that opening. Stopped cold by your dodgy bias.

    Jr Bush= 171 recess appointments. Legally justify every single one of them.

    August 1, 2005, John Bolton

    April 4, 2007, Sam Fox, Susan Dudley, Andrew Biggs. Three that day. Quelle horreur!

    Start with these. I’ll check back. You people, you leave a moist trail behind you.

    • Yeah, Jim and Congress was IN RECESS then. GET IT? RECESS! RECESS!!!!! Thus the name “Recess Appointment”. Like them or not, when Congress is in RECESS, the appointments are a president’s prerogative. IF the Congress is in RECESS. I’ll check back. You just preoccupy your nasty self with my moist trail.

      • Jakifer, get a clue. Congress was indeed in recess. The republicans only called themselves back into session for literally 30 seconds, check the record, as purely a political stunt to say that they weren’t. It seems they were able to full someone (i.e. you), but not the President. Please, do us a favor a pull your head out of your double standard.

  5. The quick stimulus from this will enrich both governments – from vast increases in tax revenues and vast drops in social programs – and billionaires (your worshipped, invented jobcreators…).

    Barack Obama is on track to win re-election by 5 or more points and you full-well know this.

    If this program were to happen, you’d only hate it because it benefits all of us, not just a few billionaires. The moral hazard of the Koch Bros-funded AEI and ALEC is that it is attempting, maybe already has achieved, a fascist coup d’etat.

    • You blew the lid off this one!

      “Already has achieved a fascist coup” … given the fact that Fascism is Corporatist Socialism (the NAZI’s were the National SOCIALIST German Workers’ Party) and Obama is President … and “acting without the consent of Congress” … WELL, YOU APPEAR TO BE RIGHT!!!

      As for the stim from this plan — depends how long it takes to implement, no?

      The rest is paranoid fantasy. Or are you telling me you believe people are so feeble-minded that they are manipulated by specific right-wing messaging? Or are they just not smart enough to heed left-wing messages, which have equal opportunity to reach them? Perhaps your fear says more about you than the People.

  6. Oh, you mean Obama’s going to take a trillion dollars and use it for the purposes the TARP money was supposed to be used for, instead of just making banks wealthier? Revolutionary.

    • That’s NOT what TARP was crafted to do, OWSer. It was crafted to BUY (T)oxic (A)ssets – not hand out borrowed federal dollars to everybody in an effort to buy an election.

  7. Well this is consistant with the administrations actions. Hand money out, especially to the irresponsible, the funding eventually paid for by the younger generation, which is ironic since they are his biggest supporters. So I say let er rip. Debt does not matter according to Nobel prize winner Krugman. Despite what the evidence says in Greece, Spain, Italy, France and that’s just the current batch. At some point the bond market in the US will realize that the Fed is just printing money and it too will require higher rates on Treasuries. It hasn’t happend yet because we are still the tallest midget in the bond market.

  8. You people should be ashamed of yourselves. If you don’t have enough education to decipher the facts in this morass, you should keep your uninformed mouths shut. What you are doing is nothing less than sedition. Shame on you.

    • In other words: Manipulating the housing markets of our entire country, thereby manipulating everything in our lives! Talk about China – this is even worse!

  9. With the Banks leveraged at 10 to 1 (even more for mortgages) reducing their future income by $121 million will reduce their ability to lend by $1.21. trillion or more than the 10 year $1 trillion stimulus.

    If you reduce someones interest expense you also reduce someones interest income transfering income from savers to borrrowers and in particular irresponsible sub prime and alt A borrowers.

    It will also make it harder to finance our deficits.

    Has anyone in this administration taken an economics course?

    • Man, do you even read? This program only affects performing GSE loans, it does not affect subprime (which is largely gone) or even most Alt-A. The loss to savers (minimal) is more than offset by the stimulus to individual households. The end game for the GSEs is elimination so there is no long term “premium” to worry about. This has NOTHING to do with financing our deficits. Hubbard is a well respected economist. His research is backed by a wide spectrum of economists and financial advisors.

  10. Econ 101 IAW the Saul Alysnski school of Community Organizers.
    1. Spend someone elses money first
    2. Insure the expenditure benefits you first.
    3. Re cycle, Re Cycle the funds until the funder trail is lost. (an old Costa Nostra trick).
    In this case, the HARP 2 process is blatantly designed to buy failed voters election allegiance, IE the November 2012 election.
    Considering the US Electorate already has a 48% + or – group that pays no taxes, yet votes thier empty wallets, then a boost like this would insure the election.
    Given that the Obama Czars are likely to be on the street come December 2012, along with thier leader, then anything goes.
    Semper FI

    • One more time for the people whose brains have been destroyed by fox news. What this program is talking about is expanding the harp programs to any browser of any gse mortgage that is current regardless of their ltv. Now understand, as of now the us government (and thus us taxpayers) are on the hook for 100% of these mortgages. This program does not create any additional liability or cost to the us government (assume these loans can be resold at par – and they should be today given the current spread environment). Please note these are gse loans so their is no credit risk to the purchaser of these bonds (and one more time for those of you who continue to not understand this – the us government is already on the hook for all these mortgages of they default). What this program is looking to do is refinance (which means the existing owners of these bonds get paid off at par) and with new mortgages (which will be sold off in the secondary market – much of the $ returned to investors rolled back into these new bonds). The key is these new mortgages will be at lower rates and for a longer term (a new 30 year term). This lowers the payment and thus will reduce the occurrence of defaults (and thus reduce the lost tows taxpayers). This is what any smart lender would do.

      Now, who loses? Investors that bought mortgages in the secondary market above par. But that is the risk you take when you buy bonds that can be paid off at anytime without penalty above par.

      Why does this work? Because we (the taxpayer) are on the hook for the liability anyway. It doesnt matter if the new mortgages do not meet traditional uw standards. We have gaurnteed their balance. We a not taking on anymore risk.

    • The 48% that you cite who don’t pay federal income taxes have that status largely due to the Bush tax cuts giving dependent child credits. The credits exceed their tax liability.

    • Just because someone utilizes the HARP program doesn’t mean they will vote for Obama. I need help and I’m not voting for him. Just taking advantage of the crazy plans he puts in place.

  11. Interesting that with the leaking of the supposed intent by the Obama Administration to buy votes via HARP 2, BofA’s stocks soared making, at the very least, Sen. Kerry EVEN richer with his insider trading, huh?

  12. So I had to pay for every last penny of my mortgage but these people don’t, just so that POS in the Whitehouse gets elected. Thats really great, and really “Soviet Union” of Him. To add insult to injury, I as a taxpayer have to pay for part of this!!! When does this shit stop!!! When does this Scumbag get voted out of office???? Are there any rational citizens left out there!! Can everyone just be bought off by this Motherless Lowlife!! I sincerely wish He drops dead before the election.

      • exactly…it is simply a refinance. Same homeowner. Just a lower monthly payment to make up for the tremendous depreciation of the home value. I know people who need to move due to losing a job, etc… but they can’t because they can’t sell their house. What they have to do is move due to finding a new job, then rent out their house that they can’t sell. The rent payment barely covers 2/3 of their overpriced mortgage payment, so they struggle to stay afloat. They can’t buy a new house in their new town due to already owning a home and they can’t qualify for HARP because they are renting their home and are not using it as their primary residence. It’s all a catch-22 scenario.

  13. If your CURRENT…..WHY do you need a new loan ???

    Many of us put 20-30% down on our homes when we purchased them years ago… and we had Equity that is now LOST…We had no problem paying a 3000/month house payment before 2009.

    But in my case… because of the BP Spill and then Obama/ Fienbergs Corrupt Conspiracy with BP Oil, and the NON-payment of Claims to small business owners that lost business due to that spill, businesses from around the Country couldn’t hold on any longer. But lets give Feingberg credit by God the Strippers in FL get mega buck reimbursement checks though, and were left to shake their ass in Feinbergs face for another day. But REAL Businesses…screw us !!

    Then the continued Obama Stimulus and Tarp to Big Bankers that REFUSE to loan money to small business owners because of bankruptcies or poor credit scores thanks to the Bush/BP Spill/Obama Economy and lack of business over all…… Now we are in line to lose our HOMES too……WE’RE BEHIND 4 months….so we are lumped with the people on the short bus. Thanks a lot but I think your WRONG !! Many of homeowners were responsible, and did everything right, and paid on time, only to have it all ripped away because everything is being TAKEN FROM US. Face it our Country is BANKRUPT….the only ones with money are the ones that did unethical things to TAKE IT from others. Tell the TRUTH. If I was reimbursed by Feinberg I would be FINE RIGHT NOW. But instead he wanted a letter from my customers a HUGE Corporate Resort Chain that was advised by their legal teams NOT to write letters for thier vendors because it opens them up to responsiblity for not buying from us. So Feinberg stuck it to US the LITTLE GUYS. This coming from a man that said he would take a $21,000/yr pay check and ended up with a $850,000/MONTH Pay Check from BP Oil to KEEP MONEY instead of handing it out to us as promised. THIS IS NOT OUR FAULT !

    I’ve worked for 30 years to build a business just to have it torn down by MORONS we didn’t even VOTE FOR in 4 years…we are being ruined by things that WE HAVE NO PART IN PARTICIPATING IN and no CHANCE of Changing. Our Gov’t and Bankers Derivitives has killed us. We can’t do anything about it. But I’ll be God Damned if I’m gonna let them get away with this. You’ll have to KILL ME to get me out of my house. PUT THAT in your Modification Plan !!!!!!!! I WANT what I HONESTLY EARNED and OWNED BEFORE YOU RAPED and PILLAGED MY LIFE and Our COUNTRY !!!

    Call a Mortgage Company and try to get an HONEST TRUE Path to follow to keep your HOME and see what you get. A Freak’n INDIA 20 Year Old, that is clueless and if you call back 10 times you’ll get 10 different answers………Try Working WITH THAT and Making a Life Altering Decision for YOUR FAMILY………..

  14. I understand many policies and like the president, but I do not think that everybody should pay for risk takers. We made bad decision as well and bought property in peak, but did not ask for bailout and worked our tail off at extra jobs. What is it with America? Nobody wants to pay their bills and make any sacrifice? There are exceptions, I know (people who do not have abilities to find job in this market and are not healthy etc. and it is sad that they became poor from middle class, something should be done with that). It is not easy to find job these days. But I see too many people say I will not work for that money and rather call all creditors and ask them to forgive or cut my debt. And to my surprise, they do, no big fuss. Who is paying for all that? We all will. In other countries they take your flat screen TV’s and furniture, here you call the bank and they cut the amount down. No problem. Why is this called capitalism? BP oil spill is another story, I think that BP should pay for all the damage they did. What are the attorneys for? This country was supposed to have best legal system. What is going on? But it is time to end false advertising and sales practices, I remember mortgage brokers saying to people – you will refinance later. Why is it still allowed to mislead people and should not we all learn from all “too good to be true” offers? We made a stupid mistake and we paid for it. Hopefully we will not make it again. We should have asked for a bailout instead? My granmother would turn in her grave. Does anyone know what honor means? I think that this is a bad idea. And we should stop behave like sheep and follow crowds no matter how stupid it is. It happens over and over in every cycle. Should we not learn from it? Award the savers, let them buy the properties cheap. That is OK and fair.

  15. re:”It would help roughly 30 million borrowers save $75 billion to $80 billion a year.”

    In other words, roughly 280 million non-borrowers lose $75 billion to $80 billion a year.
    (plus added beaurocracy costs)

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