Government Officials Weigh New Refi Program, Carrie Bay, DSNEWS.com


Word on the street is that the Obama administration is sizing up a new program to shore up and stimulate the housing market by providing millions of homeowners with new, lower interest, lower payment mortgage loans.  According to multiple media outlets, the initiative would allow borrowers with mortgages backed by Fannie Mae and Freddie Macto refinance at today’s near record-low interest rates, close to the 4 percent mark, even if they are in negative equity or have bad marks on their credit.

The plan, first reported by the New York Times, may not be seen as a win-win by everyone. The Times says it could face stiff opposition from the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), as well as private investors who hold bonds made up of loans backed by the two mortgage giants.

The paper says refinancing could save homeowners $85 billion a year. It would also reach some homeowners who are struggling with underwater mortgages, which can disqualify a borrower from a traditional refinance, and those who fail to meet all the credit criteria for a refinance as a result of tough times brought on by the economic downturn.

Administration officials have not confirmed that a new refi program is in the works, but have said they are weighing several proposals to provide support to the still-ailing housing market and reach a greater number of distressed homeowners.

According to information sourced by Bloomberg, Fannie and Freddie guarantee nearly $2.4 trillion in mortgages that carry interest rates above the 4 percent threshold.

The details that have been reported on the make-up of the refi proposal mirror recommendations put forth by two Columbia business professors, Chris Mayer and R. Glenn Hubbard.

They’ve outlined the same type of policy-driven refi boom in a whitepaper that calls for Fannie- and Freddie-owned mortgages to be refinanced with an interest rate of around 4 percent.

They say not only would it provide mortgage relief to some 30 million homeowners – to the tune of an average reduction in monthly payments of $350 — but it would yield about $118 billion in extra cash being pumped into the economy.

Other ideas for housing stimulus are also being considered. One involving a public-private collaboration to get distressed properties off the market and turn them into rental homes has progressed to the point that officials issued a formal notice earlier this month requesting recommendations from private investors, industry stakeholders, and community organizations on how best to manage the disposition of government-owned REOs.

Treasury is also reviewing a proposal from American Home Mortgage Servicing that would provide for a short sale of mortgage notes from mortgage-backed securities (MBS) trusts to new investors as a means of facilitating principal reduction modifications.

There’s speculation that President Obama will make a big housing-related announcement in the weeks ahead as part of a larger economic plan.

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