Hamp still stalled- "It’s like arguing about where to build the bedroom in the renovation of a

[midnight]

two-story house while it’s on fire. Policymakers haven’t done the job, simply put. And the only one thinking creatively about solutions to the crisis, or at least solutions to the intersecting jobs crisis, is PIMCO bond investor Bill Gross.

Bill Gross, who runs Pacific Investment Management Co.’s $239 billion Total Return Fund, said that policymakers “should quickly re-engineer” a plan that
would refinance all non-delinquent mortgages backed by the federal government. The rate on a 30-year fixed-rate mortgage averaged a record-low 4.44 percent in the week ending Aug. 12, according to taxpayer-owned mortgage giant Freddie Mac.

Taxpayers guarantee the mortgages of 37 million households, or two-thirds of all homeowners with a mortgage, according to a July 29 note by David Greenlaw, Morgan Stanley’s chief U.S. fixed-income economist. That includes government agencies like the Federal Housing Administration as well as twin behemoths Fannie Mae and Freddie Mac. Greenlaw estimates about 18.5 million taxpayer-backed mortgages are at rates higher than 5.75 percent interest.

By refinancing those mortgages at current, lower rates, Greenlaw believes those homeowners would save $46 billion a year. Gross said the refi scheme would spur some $50-60 billion a year in new consumer spending and raise home prices between 5-10 percent. Forecasters, including Fannie Mae, say home prices are set to decline the rest of the year and into 2011. Former Federal Reserve Chairman Alan Greenspan said this month that a so-called double-dip recession is possible “if home prices go down.”

The theory here is that mass refinancing would lower monthly payments, put more money in the pockets of all homeowners, allow a non-trivial amount to afford their homes again and avoid foreclosure, and increase consumer spending and aggregate demand. Because Fannie and Freddie already basically own 90% or more of these mortgages, they could put this together without costing taxpayers a dime and with no further Congressional action.


http://news.firedoglake.com/2010/08/18/pimcos-bill-gross-blows-up-the-housing-finance-conference-by-promoting-mass-mortgage-refinancing/

[dkf]

1. "no cost to taxpayers". Now those are welcome words to hear.