Why haven’t you done a story on how to really get the economy back on track? There should be a simple streamline refinance mortgage loan which will only reduce the interest rate to the current rate. There shouldn’t be any closing costs and no other costs attached to this streamline refinance.
*I think this will indeed get the economy back on the right foot fast and it will allow the banks to stop gouging us with junk fees and other frivolous fees.
If you start talking this up, hopefully the banks will begin to listen and act responsibly. Thank you.
I received this email from Carol, who lives in Georgia, this week. But I received a similar one from Mike, in Texas, and another from Frank, in Massachusetts.
The idea, while not completely original, builds on an idea put forth by PIMCO CEO Bill Gross sometime in mid-August.
Gross said that if the federal government were to offer to refinance all homeowners who are current on their mortgages at 4.5 percent, the monthly savings would allow consumers to pump billions of extra dollars into the economy – without requiring another stimulus. And, because the savings is ongoing, demand would be stimulated through the term of the loan.
The problem with stimulus checks thus far is that many consumers aren’t spending them in a way that helps the economy. They’re taking their checks and using them to pay down debt (deleverage is the fancy term economists use). While paying down debt is good for us (and Uncle Sam) long-term, it doesn’t do much to stimulate the economy.
The economy is already beginning to suffer from the deleveraging of debt. The latest Federal Reserve Bank “Beige Book,” released the first week of September, indicates that economic activity is slowing all over the country.
(You only have to look at the extremely high rate of unemployment and the continued high level of first unemployment claims each week to understand that companies are continuing to fire employees and not hire as many new ones.)
I decided to ask my radio show listeners what they would do with the extra money they’d have in their pocket each week if they were able to refinance their mortgage at 4.5 percent.
A couple of listeners said they would use their savings to continue to pay down their debt. This wasn’t surprising because a big part of my on-air message is to pay down debt.
But a number of folks said they would probably go out and spend the extra money. You know how it goes: Money burns a hole in your pocket and the more you have, the faster it burns.
Which is what President Obama’s economists hope will happen.
The problem with doing a simple streamline refinance (which is essentially available for VA and FHA loans today) is that eliminating fees will eat away at the banks’ profit. It’s also tough if these homeowners are underwater with their mortgage, meaning they owe more than the house is worth.
Can we count on our financial institutions to step up and take action on Carol’s, Mike’s and Frank’s plan? I’m not so sure.
I think it’s more likely that the Dept. of Housing and Urban Development (HUD) will start to refinance homeowners who are current with their mortgage but have some other sort of problem (credit, second loan, and/or lack of equity) that is prohibiting a conventional refinance.
While the government would be on the hook if some of these loans go bad–and some will–the overall quality of the loans will be higher since you’re cherry-picking homeowners who are current on their loans and making it even easier for them to afford their monthly payments.
Clearly, pumping money into the economy will help it improve. But doing it in a way that doesn’t raise the federal deficit is crucial. This idea can help and it’s time HUD acted on it.
The real question is at what point will the government come up with a plan that doesn’t unduly tax the budget deficit, and actually helps the growing number of homeowners who are desperate for assistance?