Helping Homeowners to Refinance
Editorial
Here is the catch: Millions of people who are current in their payments cannot qualify for low-rate refinancing because their home values or credit scores have declined during the recession.
That is bad news for everyone. But there is a way out. Many of the disqualified mortgages are owned or backed by Fannie Mae and Freddie Mac, the government-controlled mortgage companies. The Obama administration could direct the companies to refinance the loans of anyone who is current. That could pave the way for up to eight million refinancings, for a savings to borrowers of roughly $24 billion a year.
Loosening loan standards may seem like a replay of what caused the mortgage mess, including the costly failure of Fannie and Freddie. But both companies and taxpayers are on the hook if borrowers default. Refinancing would lessen the likelihood of more failures.
So far, the administration says it is not pursuing any refinancing options beyond the ones it currently has on offer. Its main program — the Home Affordable Refinance Program (HARP) — has been a flop. It calls for Fannie and Freddie to refinance loans for underwater borrowers with good payment records. But for many of them, the rates of Fannie and Freddie are too high to make a refinancing worthwhile. For HARP to work, the government has to tell Fannie and Freddie to ease up.
The main reason not to do that would be to shield investors in mortgage-backed securities from losses. Those securities pay a higher rate than many other bonds precisely because of the risk the loans will be refinanced. The economic benefits from lower monthly payments would be quick and concentrated, while investor losses would be dispersed over a global market.
The nation needs a serious debate about the future of Fannie and Freddie. The administration started that discussion in August at a meeting of experts from the public and private sectors. For now, however, the government owns the companies and should be doing more with them to help homeowners.
www.nytimes.com/2010/10/10/opinion/10sun2.html
Oct. 9, 2010