Letting homeowners refinance at historically low rates would conjure billions of dollars of relief without the approval of a do-nothing Congress. What's the downside?
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Last week's $26 billion deal between the government and banks accused of mortgage fraud was the most significant effort to hold financial firms accountable for malpractice in the housing bust. The feds plan on using most of the money as a life-raft for homeowners who are underwater, or owing more on their mortgage than the value of the house.
But the deal is insufficient to address the housing crisis, and the U.S. economy still needs massive mortgage refinancing to flush out the worst of our debt overhang.
Since August, rumors have been flying around Washington that the White House was this close to putting out a plan to massively expand mortgage refinancing through its government-sponsored enterprises, such as Fannie Mae. This plan would let more homeowners refinance at historically low rates. Like waving a magic stimulus wand, it would conjure billions of dollars of relief for homeowners without Congress' approval.
WINNERS AND LOSERS
Last year, the administration updated the Home
Affordable Refinance Program, or HARP, to allow borrowers to take advantage of ultra-low interest rates by refinancing their Fannie and Freddie-backed mortgages. In the State of the Union, Obama laid out a plan that would allow underwater homeowners whose mortgages were not owned by Fannie Mae or Freddie Mac to refinance into loans backed by the Federal Housing Administration.