And that’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.
I found this interesting, and can’t wait to see the legislation that the Prez is going to offer up.
I have written four articles on the topic of a Mega ReFi. The first one was back in August. At first I thought there might be something behind all this talk. Now, five months later, I think it's all gas. We’re not going to see any big ReFi plan until after the next election. These are the issues as I see it:
The Administration has been trying to come up with programs that would aid underwater homeowners. This problem is, by far, the biggest domestic drag on the economy. So it makes sense that the Obama team is looking for ways to deal with it. There is one enormous impediment that they face in achieving this lofty objective. They don’t have the money to fill this very big bucket. If they tried to pass a bill that would raise the odd $200-300 billion needed, they'd fall flat on their face.
The Administration's thinking has been that underwater borrowers should get the benefit of today’s lower interest rates, and it should not matter if the borrowers are underwater by 25% or more. The White House would like the unrealized losses to be rolled over at a low enough interest rate to let those borrowers dig their way out of the negative equity hole in five or ten years.
To achieve all this, the President’s men leaned hard on the one guy who had to sign off on the plan. The President had to ask the permission of Edward DeMarco, the Acting Director of FHFA. DeMarco is ultimately responsible for what happens with our dear friends, Fannie Mae and Freddie Mac.
I have followed DeMarco’s words since he was appointed Acting Director. He repeats the same thing every time he has a chance to describe the goal of his job:
As FHFA has noted on numerous occasions, with taxpayers providing the capital supporting the Enterprises’ operations, this “preserve and conserve” mandate directs us to minimize losses on behalf of taxpayers.
In my opinion DeMarco has lived up to that. He has taken steps that have reduced the risks and the ultimate costs that the taxpayers face with Fannie and Freddie (F/F) . It’s for that same reason that he has not allowed F/F to be the agencies of the Administration’s economic plans.
These plans would force F/F to reduce interest rates on outstanding mortgages. As some of those mortgages are in inventory at F/F, the ReFi will result in additional losses. More importantly, the ReFi’s will require a waiver of many existing representations, and warranties of existing borrowers. In the end, there would have been a cost to all of this. The plan was for F/F to absorb the costs over time, and therefore kick the can down the road. (Why the President said there would be no cost)