Massive housing re-fi program making waves, again
August 22, 2011, 5:31 PM
A housing program that includes a massive mortgage refinance proposal – and a backdoor stimulus to boost consumer spending – is generating debate again in Washington.
At least that’s the word from Jaret Seiberg, analyst at MF Global Inc. , in his report Monday. Seiberg said it could be a proposal announced by President Barack Obama as part of a post-Labor Day address about jobs and the economy.
“The administration is desperate for ways to revamp housing. The one idea that doesn’t go away is a mass refinancing program,” he said in a report.
(Some analysts believe that the Federal Housing Finance Agency, which oversees government-seized housing giants Fannie Mae and Freddie Mac, could implement such a program on its own without statutory authority).
The idea of such a program first emerged on a large scale in August 2010, but soon went back under the radar – until now.
With such an approach millions of mortgages backed by the U.S. government could be refinanced without the need for an analysis of a borrower’s credit quality because the principal is already backed by the government. Many homeowners who are unemployed, have poor credit or who owe significantly more than their homes are worth currently can’t refinance, but would be permitted to use such a program.
It could boost the economy by putting cash for spending into borrower hands. However, Seiberg insists that there are lots of problems here, adding that FHFA policymakers are seeking to reduce taxpayer costs and that such an approach could cost billions more for taxpayers. He added that it could also cause problems for the troubled mortgage-backed securities, or MBS, market.
“This could accelerate losses for [Fannie and Freddie] and could disrupt the MBS market…” Seiberg said in his report. “It requires FHFA to go along. That is an issue as FHFA has been very consistent in arguing that its top goal is to minimize losses to the enterprise. So any program that could boost losses is a negative. The administration is trying to overcome FHFA’s objections by arguing that the short-term additional costs are outweighed by longer-term savings.”
Seiberg also discussed a number of pieces of legislation that could become a focal point for debate in the months to come, even though he adds that the ideas have little chance of being approved because of GOP opposition over costs to taxpayers and MBS holders.
Rep. Gary Ackerman, D-N.Y., introduced the “Homestead Act 2” bill last week that would provide down-payment assistance in the form of a government matching subsidy of up to $20,000 to the first 2 million creditworthy borrowers. The subsidy would be in the form of a loan to the borrower, and 20% of it would be forgiven each year over five years. With the bill, 1 million borrowers who buy a home and turn it into a rental property would have their rental income tax-free. However, Seiberg seems skeptical “It’s a Democratic idea and it is hard to see how House GOP would pass it,” he said.
Read about the bill here.
A housing bill introduced by Sen. Barbara Boxer, Democrat of California, seeks to help underwater borrowers.
Another program Seiberg insists would have trouble with Republican support seeks to allow a part of a borrower’s rent to go towards a down-payment to buy the home.
Such a “rent to own” approach needs legislation and a funding source, Seiberg said.
– Ronald D. Orol
