MASSIVE REFI UPDATE
The CBO (Congressional Budget Office) has come out with a working paper that looks at the pro’s & con’s of a large scale refi of Agency Mortgages.(Fannie & Freddie). You can read the 31 pg. report at this link;
Up front, this can be viewed as “stimulus”. It would provide a short term boost of savings on home mortgage payments. The “Theory” these consumers would Spend the savings (consume) and thus help the Economy. What happens if the monthly savings is NOT spent but saved?
Here are the High Points:
The program would potentially help an additional 2 million homeowners refi. Projected to keep an additional 100,000 + from default. Projected to save Freddie & Fannie about $3.9 billion. I’m all for stopping the “death by a thousand cuts” for F&F.
Hold on, If someone wins, then someone looses. As I stated before, the BIG LOOSERS would be the MBS Investors. Before you say screw them. F&F, Treasury, Federal Reserve hold a big hunk of the Agency MBS. That boils down to the TAXPAYER owns the MBS.
Estimated loss, $4.5 billion. So, that means that WE are in the Hole for about $600 million on this deal. SO MUCH FOR NOT COSTING THE TAXPAYER A PENNY. Private MBS Investors are estimated to loose around $15 Billion.This appears to be another Can Kick. Principal Reductions are not in the equation.
I’ll keep an eye on this.
Comments (2)
David, as I see it there are 2 bullets left in the pistol. 1. Principal reduction but, Losses realized would far greater exceed the refi scheme. 2. Total reset,game over. Not what I want to see. David, every other plan other than what I favor; Private Equity Funds Take Down the Fannie & Freddie Inventory, won't fly.
Mike Morrison, almost 15 years ago
I don't think the saving argument for people in distress is viable. They do not have an abundance of capital. The winners/losers discussion has merit. What is the alternative if the properties are not refinanced?
David Wedemire, almost 15 years ago