Housing Policy

Obama's Big New Housing-Refinance Idea: A Backdoor Stimulus?

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He ate more chicken any man's ever seen

Over at the Reason Foundation's Out of Control policy blog, Anthony Randazzo examines President Barack Obama's SOTU-announced policy proposal giving "every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks." What would these words mean, translated into policy?

One key phrase in this is "every" responsible homeowner, suggesting that the new plan will cover mortgages that are not backed by Fannie Mae and Freddie Mac. At present, banks only participate in programs like HAMP and HARP (the utterly failed refinance and modification programs started by the administration years ago) on a voluntary basis. While the details of the program are not all out on the table yet, the President suggests he wants Congress to require banks to give easy refinancing.

The other key caveat in the program is that is "responsible homeowners." These refinances will not be available to pretty much anyone struggling to make their mortgage payment or who has fallen behind because refis are only permissible for those who are current on their mortgage (usually meaning you've made at least your last six months payments). So while the President puts his program in context of "lenders who sold mortgages to people who couldn't afford them, and buyers who knew they couldn't afford them" this doesn't address at all borrowers who are facing foreclosure.

The program also does not change life much for those who are underwater on their mortgage. A refinance is not a modification. […]

So what is this program? A stimulus program.

Thankfully, Biden doesn't have any bullets left

Do tell.

The program aims to put $3,000 in the pocket of every American who is already able to pay their mortgage by a forcible refinance. Since those homeowners won't need the money to pay for their home, they can presumably use it elsewhere in the economy. Stimulus.

The problem is that even if you support the program purely as a stimulus (which many surely do), it doesn't really help the economy on net. The money for the stimulus is going to be taken from financial institutions, mortgage investors, and even grandma's pension fund.

Here is how: Although we don't have the full details for the program we know the President wants to pay for it with "a small fee on the largest financial institutions." […] So the initial funding to pay for the refinancing will come out of the economy through financial institutions and then put back into the economy through consumers—a highly inefficient use of resources compared to those institutions investing directly in small businesses or technology research or whatever is determined to be a good investment idea.

Read the whole thing here. More Randazzo on "The Myth of the Middle Class Mortgage Deduction," the urgency of stopping mortgage investor bailouts, and how there will be no lasting "recovery" until the federal government stops trying to prop up housing prices.

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    1. Not clicking your fucking link.

      1. baby, get over the fact that your dick does not control the actions of others

        BTW, practice makes perfect better

        1. He’s speaking for everyone.
          That’s pretty serious.

        2. Glad you took my cock out of your mouth long enough to post. Now put it back in bitch!

      2. I am shocked to find link-whores here.
        Shocked!

    2. I use Starbucks as a (relatively) quiet place to study. I would use a public library if they let me drink coffee there – but they don’t. Fortunately Starbucks does let me drink coffee (as long as it is theirs).

      1. I’m a big fan of college town coffee shops because many of them cater to the students with large, library style tables and extra outlets for laptops.

        Starbucks doesn’t always have those things.

        1. I read at home and make my own coffee.
          The end.

          1. My home is usually too noisy to do much studying – and I don’t like earplugs

            1. That’s why training yourself to do your work very late at night is a great idea.

  1. “So the initial funding to pay for the refinancing will come out of the economy through financial institutions and then put back into the economy through consumers?a highly inefficient use of resources compared to those institutions investing directly in small businesses or technology research or whatever is determined to be a good investment idea.”
    _

    had TARP been structured such that every homeowner in america received ~300k (instead of the financial institutions), then money wouldve been better spend by paying-off loans to the lending institutions (homes, cars, etc) who wouldve therefore received a stimulus.

    1. That assumes anybody that voted for TARP was interested in actually stimulating the economy and having people pay down their loans.

      1. a rational critique

  2. Tighten lending standards!
    Relax lending standards!

    Make up your fucking mind.

    1. TARP wasnt mortgage lending.

      1. O3 you stupid whore. mortgage lending standards have tightened because that’s what was screamed for. are you saying it’s too tight? you cried for it, own it.

    2. Lending standards are fully market based.

      The only distortion was agency (GSE) conforming loan standards which were higher than private standards during the housing bubble.

      Its a right-wing myth that banks were “forced” into subprime.

      1. The only distortion was agency (GSE) conforming loan standards which were higher than private standards during the housing bubble.

        Since the GSEs could borrow at below-market rates due to their implicit (eventually explicit) government guarantee, they could pick the creme de le creme of mortgages to buy.

        The banks were making subprime loans mainly because they were the last remaining profitable sector not dominated by the GSEs, GSEs eventually lowered their standards in an effort to spur homeownership, this artifical demand drove up the price of all housing, even those units not bundled in GSE mortgage bonds (when Fannie/Freddie is buying everything in sight, what they’re not buying is also going up because few things remain that they are NOT buying).

        The GSEs are primarily responsible for the severity of the events in 2008.

      2. but a self-seving myth since it allows for libtoidz to dance like meadow-faries around business misrepresentation & malfeasence which is the proximate cause in several suits.

        1. Wow, you read all the documents obtained during discovery and are positive that’s what happened? How do you have the time?

          Or it could be that everybody in the banking industry is guilty of, at the very least, not performing due diligence and are now casting about looking to blame somebody else for the mistakes made. Of course, a bank wouldn’t try to sue someone over bullshit to deflect blame, would they?

          1. Pretty sure they’re just trying to get the taxpayers to pay for their bad bets.

    3. Prop up the housing market
      Make housing more affordable.

      Make up you fucking mind.

      1. no reeson to not have both lolz

    4. lending standards at the gym

  3. Isn’t government always a “backdoor stimulus”?

    1. “Backdoor Stimulus” is the Federal Government playing “just the tip” with the American people.

    2. “backdoor stimulus”?

      PRESENT!

      1. tony, dont bent over for that

        1. WHAT??? WHO???

    3. i’ll stimulus your..

      fuck that one’s too easy

  4. Let’s wait and see who really takes the loss when all those mortgages are written down. Could be investors in MBSs and banks, if the losses just have to be eaten.

    Could be taxpayers, through some kind of bailout of the above.

    It won’t be covered by a small fee on anybody, though.

    I think this may just be part of the current stealth Quantitative Easing program, where the Fed is buying up (bad) MBSs at pretty much full price. This is monetizing debt, of course, with the twist that they are monetizing the debt of government cronies, rather than the government itself.

    1. The Fed is buying MBS at full price? Link?

      The big mortgage banks are funding this program via the $25 billion settlement for mortgage foreclosure fraud they have negotiated with the 50 state AG’s. They are wrapping it up now – the sticking point is their forward immunity request.

      1. $25 billion is a parking ticket to those people. Actual principled liberals are incensed about that settlement. As they should be.

      2. http://www.businessweek.com/ne…..n-qe3.html

        Describes the $500BB plus program as QE3.

        http://www.businessweek.com/ne…..eeded.html

        Bernanke saying the Fed needs to cut the cost of home loans and stimulate housing.

        Can’t turn up anything quickly on the price paid now (or in 2008, during the last MBS buying binge). However, it makes no sense for the Fed to buy them only at a heavy discount, given their goals. Purchases at a heavy discount would require sellers to (finally) realize their losses, and I haven’t seen any sign of that.

        1. Oh, and that $25BB settlement isn’t funding a $500BB plus buying program.

        2. You won’t find it. The Fed bought GSE bonds during QE1. Those bonds still sell at par but only because the Treasury honors the implicit federal guarantee.

          The small exception would be the Bear and AIG Maiden Lane deals which are a tiny fraction of their balance sheet.

          Merrill sold their MBS at .22c on the dollar in 2008 to Lone Star Capital. A floor was struck at that time.

          1. shrike, you are right to slam the red-state simpletons who aver that the greater depression was principally caused by the Freddie and Fannie fiascos.

            You are also right to remind us that there is an ongoing multi-trillion dollare scam which has been orchestrated by the banks and mortage companies and mortgage service companies.

            If A institutes a foreclosure and it can not prove that it owns both the note and the mortgage securing the loan, then A should not only be tosssed out of court, but, in addition, A should have to pay 10 times the actual damages of the homowner who had to suffer through the fraudulent attempt to take his home.

            Moreover, when banks and other vultures whine about the capital markets drying up if there are no special rules for them, YAWN.

      3. The big mortgage banks are funding this program via the $25 billion settlement for mortgage foreclosure fraud they have negotiated with the 50 state AG’s. They are wrapping it up now – the sticking point is their forward immunity request.

        Question… why did the AGs want this negotiation complete by the President’s SOTU? Are they on Obama’s payroll or something?

    2. I know who isn’t taking the hit. The firms that bought the MBSs. Who, along with homeowners and anyone who insured MBSs, ought to take the entire brunt. If the MBS vehicles are toxic, then banks can’t bundle them and get back to being lending institutions with a stake in their borrowers’ success and not a pass-through fee-based business model. (This will also require gutting Fannie and Freddie to be successful.)

  5. NatLamp photoshop, FTW!

    1. Reason can’t make up its mind: half-serious libertarian rag or second-rate humor mag?

      1. and by “serious,” you mean what, exactly?

        i’m pretty fucking serious about making the world a better place by ending most of government. it’s the pious shitheads who want to harm the world with their constant obeisance to “policy” and “solutions,” all of which are always terrible.

  6. Just do it already. Nationalize all loans like student loans were, and then forgive them. We’ll have the perfect economy.

    1. what could go wrong?

  7. The program aims to put $3,000 in the pocket of every American who is already able to pay their mortgage by a forcible refinance.

    Would someone rephrase this? I don’t understand how a person is able to pay a mortgage by a forcible refinance, whatever that is.

    1. FWIW, according to a quick Google, “forcible refinance” seems to be a new term

      1. “forcible refinance”. You’ll find it a few pages after “date rape” in the dictionary.

    2. The program aims to put $3,000 in the pocket of every American, who is already able to pay their mortgage, by a forcible refinance.

      1. Gee, thanks.

        1. I thought my adding the commas made it clear that they weren’t paying the mortgage by forcible refinance, but are already able to pay their mortgage. The forcible refinance is what would get the homeowner the 3k.

  8. So, a new tax to finance a new government bailout.

    Nice.

  9. When did Biden become a cop?

  10. Just give every American person in the country $3K and be done with it.

    1. Including me?

    2. Just popping in to say hi!

      1. thatz not what causes inflation

        deflation is the bigger worry for serious people

  11. In one of the clips on Bloomberg this morning, I could swear I heard him saying we will not return to the failed policies which caused the Great Miasma. I must have misheard him.

    1. The politics of failure have failed. We need to make them work again.

  12. That’s Zach Galifianakis, right?

  13. Also note that by reducing the interest paid on mortgages you are reducing the tax deduction available, so tax payments very well may increase as a result.

    1. Presumably the “responsible” borrowers are current on their mortgages. If their rate is 5% and the government gets them down to 3%, that’s 2% of early-term interest payments that vanish. That doesn’t help lenders, it hurts them.

      Only Obama would come up with the genius idea to “help” lenders by reducing the value of the performing loans on top of the pile of non-performing ones. It will certainly cause credit to tighten even further, the exact opposite of the stated goals.

      1. Unless that is the true goal.

  14. Isn’t this hugely beneficial to the rich and much more marginally so to the poor?

    1. Why yes, yes it is.

      The poor won’t see a nickel, since they don’t own houses.

      The richer you are, the bigger your mortgage is likely to be, and the more the refi will save you.

      Of course, those who own outright won’t see a nickel.

      Subsidizing debt doesn’t reduce debt, so the problem of overleverage is exacerbated, not reduced.

      1. Stop it with that fancy economical talk!

    2. Also benefiting homeowners over renters (thus rural over urban areas, I suspect) and people who bought recently vs. those who bought a long time ago. But government’s good for nothing if not robbing Peter to pay Paul.

  15. that’s some racist alt-text, right there

  16. My mortgage is held by my small-town bank. You know the line on your truth-in-lending statement, where it indicates what percentage of mortgages the primary lender ends up selling on the secondary market? Well, mine says zero. At the time it was made, I had been set up, through a broker, with another lender, but when it came down to the wire, I found they were going to be raking me over the coals on APR (it was a no-doc, and I was green). So I called up my bank, and they performed a small miracle (this was within 2 weeks of closing on new construction) in setting up my mortgage, which allowed me to call up the broker and tell her to go fly a kite. My mortgage rate is about 1% more, currently, than I might be able to get in a refi, and I want to keep it that way, thank you.

    1. *eye twitch*

  17. So basically Obama is just trying to buy some votes and he thinks $3000 sounds about right.

    1. Bribery is legal as long as you are a public official.

    2. Like most populists, mobsters, and dictators, there’s always a price attached to the gift. Don’t tug on that leash too hard or they’ll hang you by it.

  18. The program aims to put $3,000 in the pocket of every American who is already able to pay their mortgage

    So Obama is offering me $3000 bucks if he wins the presidency? Where’s my voter registration form. I can’t pull the lever fast enough.

    1. I rent so it’s basically a big “fuck you” to me and my wife.

      1. I rent so it’s basically a big “fuck you” to me and my wife.

        No shit. Buying a fucking house and prosper, asshole.

      2. I rent so it’s basically a big “fuck you” to me and my wife.

        Why do you hate debt?

  19. Gee. Obama trying explicitly to buy voters by giving them $3k in “free” cash.

    Who the fuck knew he was willing to engage in buying votes?

    1. Uh…..we did?

  20. Not bad idea. Pres. Obama is just trying to save us from a major credit of home foreclosure. When considering home mortgage refinancing, it is very important to know what variables can impact the refinance rate received. Each factor can have as much as a full percentage point’s difference in the brand new mortgage interest rate, according to several mortgage specialists. Armed with knowledge, you can approach your own home mortgage refinancing with greater assurance. Article source: Factors that influence a refinanced mortgage rate

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