Government Officials Weigh New Refi Program

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.
[IMAGE] According to multiple media outlets, the initiative would allow borrowers with mortgages backed by ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com to 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"":http://www.fhfa.gov (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 weigh-

[COLUMN_BREAK]

ing 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"":http://www4.gsb.columbia.edu/null?&exclusive=filemgr.download&file_id=3549 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 â€" 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"":http://dsnews.comarticles/administration-investors-wanted-to-rent-out-government-reos-2011-08-10 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"":http://dsnews.comarticles/regulators-considering-new-housing-policies-2011-07-22 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.