Bill Gross Calls For Massive Taxpayer-Backed Mortgage Refinance (GOOD!!)

[Kurt_and_Hunter]

This is good. (Even if it benefits Bill Gross, it's good.) This sounds like what I wanted done with consumer debt in February 2009.

Interest rates are very low. If people in trouble could reduce interest payments on debt they could buy more stuff, but they cannot refinance because they are in trouble. (The rich are all cleaning up their balance sheets nicely by refinancing all their debt.) The cheapest way (lot of money up front but cheapest as it plays out) for the government to stimulate demand is to refinance existing debt almost automatically. (Doing it case by case takes too long and misses the point.) You don't get it all back, no more than any lender does, but you get most of it back.

IMO, consumer credit would have been better but mortgages are good too.

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Famed Investor Bill Gross Calls For Massive Taxpayer-Backed Mortgage Refinance Initiative

The head of the world's biggest bond fund, bemoaning the slow economic recovery, reignited debate Tuesday by publicly supporting a massive new refinance program currently roiling the mortgage bond market by describing it as a form of fiscal stimulus that wouldn't add to the deficit. 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."

In theory, the proposal would immediately help those homeowners, as they'd save on their monthly mortgage payment, and it could help the broader economy because homeowners could take the savings and spend it, spurring growth. And because homeowners -- particularly those who owe more on their mortgage than their house is worth -- would have more affordable payments, less of them would fall behind and face foreclosure, stabilizing the housing market and leading to an uptick in prices.

http://www.huffingtonpost.com/2010/08/17/bill-gross-mortgage-refi-_n_685228.html

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Krugman:

Gross On Debt

We’ve been scooped! Yesterday Robin and I were talking about the implications of a balance-sheet view of the economy’s troubles, and realized that it makes a strong case for using Fannie and Freddie to bring down homeowners’ debt burdens.

http://krugman.blogs.nytimes.com/2010/08/18/gross-on-debt/

[Extend a Hand]

1. Won't fix the problems in the worst hit states

Why stay in a property paying when you owe twice as much as the property is worth? Even at 0% a re-fi program with out requiring banks to make principle reductions is worthless.

It is surely not in the best interest of many mortgage holders to continue paying on an underwater loan. Make bankruptcy cheaper and easier so consumers can start over with a clean slate and quit laboring in debt servitude.

[Lance_Boyle]

2. Bad. If you can no longer afford the house in which you live, get out.

That's the only way to bring sanity back to property valuations. People who overbought will lose. It needs to happen.

[Kurt_and_Hunter]

3. Wow.

[Lance_Boyle]

6. OK, then, 'free houses for everyone, regardless of ability to repay!'

That's just not sound policy.

[Kurt_and_Hunter]

7. When someone proposes that it will, indeed, be unsound policy.

The proposal being discussed involves only refinancing existing mortgages.

It is hard to see how it could be all that damaging to any interest except perhaps private mortgage re-fi lenders.

[Lance_Boyle]

8. Refinancing AND PUTTING TAXPAYERS ON THE HOOK FOR DEFAULTS.

That's the key bit. Taxpayers should not assume risk for people who speculated on property, or simply overbought.

[Kurt_and_Hunter]

16. try it this way...

The OP talks about the set of homes with mortgages currently insured by the federal government. Those are the mortgages Gross is talking about.

A program to reduce the interest on them to, say, 4.5% would reduce the amount of money coming in but would not increase the numbers of defaults. It would decrease defaults somewhat.

The government would lose some money, which is the point of the thing.

The idea is that Congress is not likely to pony up any new money for housing or anything else. But another arm of the government can put 60 billion into real circulation (unlike when the Fed creates a trillion dollars in potential loans that never gets turned into money) while stabilizing foreclosures a little.

It is a stimulative act and, like almost all of the stimulus, loses money. The government cannot put more money into the economy without losing money or we wouldn't have a problem.

It's a modest sort of plan and would be very helpful in an environment where Congress is not going to authorize any brand-new spending in the near future.

The idea is not to bail out people in particular trouble. It is to increase the monthly disposable income of a very wide range of people.

Sorry if I was too snarky before.

[Statistical]

12. and taxpayers (both via interest costs & losses). n/t

[Dappleganger]

10. We didn't overbuy.

We bought less than what the bank said we could afford almost a decade ago. However, our income is now $20K less per year and our utilities have gone up exponentially (not to mention the price of food, insurance and medical costs). We purchased before the bubble (the very beginning of the upswing) and have never been late in one payment, despite being out of permanent work for over a year. We desperately need the rate of our house lowered but am not sure if we qualify as we're not behind.

So no thanks for your unhelpful blanket judgment. Haters always gonna hate.

[Lance_Boyle]

11. Not hating, but if you can no longer afford the house, you should sell it.

You are not *required* to keep living in a place just because you planned to. You are also not *entitled* to keep living in a place just because you planned to. People's circumstances in life change. You can no longer afford the house. So sell it.

[Dappleganger]

13. Sell it for what?

There are dozens of foreclosed homes in our neighborhood and we would not even be able to recuperate the more than 20% equity we put down on it.

Any other right-wing simplistic ideas to throw out??

[Lance_Boyle]

14. Sell it for what you can get for it.

Nobody ever promised you the value would keep going up and up forever. And if they did, you ought not to have believed them (you know what they say about things that sound too good to be true). So you have to sell at a loss. Same thing happens with every car I buy and then sell.

[Dappleganger]

15. Please tell me

you aren't serious.

We didn't buy the least expensive home in this neighborhood in order to gain anything but being able to live in a decent school district for our children, which we could WELL AFFORD a decade ago, as well as put away a lot for savings (which we have had to blow through during the last year of layoff). Your advice is completely WORTHLESS, callous and typical right-wing bullshit.

Pathetic.

[earth mom]

4. Sounds good to me, but I still think all taxpayers should get a 10 to 20K payout

bailout.

If the bankster gangsters deserve a bailout, honest hard working taxpayers should get one too!

[Better Today]

5. That along with a 12 month moritorium on foreclosures of those who

are demonstrably unemployed might help.

[dkf]

9. This is the policy that could save Democrats butts!

What is the downside seriously?

The best thing is it rewards people for paying their mortgages even though they were underwater and could have walked away.

[Kurt_and_Hunter]

17. But it might help somebody somewhere...

Can't have that.

:shrug: