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NYT: Obama Administration Floating Refi Proposal

On Wednesday the ""_New York Times_"":http://www.nytimes.com/2011/08/25/business/economy/us-may-back-mortgage-refinancing-for-millions.html?_r=2&hp broke a story suggesting that Obama administration officials are floating proposals to inject the ailing housing industry with needed relief, encourage the markets, and potentially energize the broader economy. If it passed with recommendations from an academic proposal, the refinance plan could potentially infuse the economy with $118 billion in savings and add to historic highs for mortgage applications.

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Describing an unspecific plan, reporters Shaila Dewan and Louise Story said that the refinance proposal would, in effect, provide the economy with a robust stimulus, shedding expenses off consumers' mortgage bills and creating disposable income in wider markets. Such a plan, while inventive, could run into stiff opposition from GSEs ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home and ""Freddie Mac"":http://www.freddiemac.com/ as well as investors with a stake in government-backed mortgage bonds.

According to the _Times_, the refinancing proposal could help rescue homeowners in distress by saving $85 billion annually ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a boost with demand given the fact that homeowners owe on their houses than their worth or succumbed to economic woes by harming their credit.

The newspaper said that the refinancing plan ""is still under discussion"" by housing officials across the administration, with questions about eligibility and whether mortgages past due could apply for the program.

Signaling how guarded the proposals remain for the administration, a spokesperson for the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) refused to comment on the story for _MReport_.

The _Times_ quoted Frank Nothaft, VP and chief economist with Freddie Mac, as saying, ""It almost seems to me you want to have some type of announcement or policy, program or something from the federal government that provides that clear signal that we are here supporting the housing market and this is indeed a good time to really consider buying.""

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""This is the best stimulus out there because it doesn't increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,"" the newspaper quoted Christopher Mayer, an economist and professor with the ""Columbia Business School"":http://www4.gsb.columbia.edu/, as adding. ""So I think this is low-hanging fruit.""

Neither Nothaft nor Mayer could be immediately reached for comment.

The newspaper said that the proposal built on recommendations from a white paper by Mayer and R. Glenn Hubbard, another Columbia professor who once chaired President George W. Bush's ""Council of Economic Advisors"":http://www.whitehouse.gov/administration/eop/cea/.

The professors' proposal recommended that the government offer homeowners with federally insured mortgages the opportunity to refinance their loans one percent below current rates, or at 4 percent, ""once unimaginable"" before the financial crisis.

If the under-wraps Obama proposal gleans enough recommendations from the paper, the economy at large could see a cash infusion of some $118 billion each year that homeowners can refinance their mortgages at current rates. Some 20 million Americans could feel the impact, getting out of negative equity and saving more than $350 each month.

Would a proposal to allow borrowers to refinance at current rates make it through Congress?

In a column for the ""_Washington Post_"":http://www.washingtonpost.com/blogs/ezra-klein/post/can-the-obama-administration-refinance-your-mortgage/2011/08/25/gIQAQs3BeJ_blog.html, Ezra Klein wrote that it may not even make it through the White House.

""I don't think the chances of a major new refinancing policy are very good,"" he wrote, highlighting ""thorny policy questions"" and concerns about ""whether taxpayers are willing to subsidize housing debt.""

Klein said that the FHFA, which oversees the federal conservatorship of Fannie and Freddie, remains under a Bush administration holdover, Acting Director Edward DeMarco, who seems ""mostly interested in limiting Fannie and Freddie's short-term losses,"" along with Republican lawmakers.

If the proposal makes it through, it would add to the historic refinancing surge currently underway, which continues to drive mortgage application volume. On Wednesday the ""Mortgage Bankers Association"":http://mbaa.org/default.htm ""reported"":https://themreport.com/articles/mortgage-applications-hit-15-year-bottom-despite-low-rates-2011-08-24 refinance applications jumping to nearly 80 percent.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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