The Federal Housing Finance Agency (FHFA) is expected to lay out plans to boost mortgage refinancing in the US. However, many experts disagree on how it will affect the ailing economy.
The Obama administration is keen on improving the refinancing market, with the current low interest rates serving as a way to save consumers money, while the US Federal Reserve finds that the lack of refinancing has barred its monetary policy from helping the economy.
This resulted in much of Washington’s economic policy segment adopting an offensive stance to influence the FHFA and its director, Edward DeMarco, that greater refinancing is in taxpayers’ best interests.
“Certainly, in my mind, the approach to take is that in the longer term the government is on the hook for mortgages which are deeply underwater,” said Sarah Wartell, Executive Vice President at Center for American Progress, referring to cases where Fannie or Freddie guaranteed a mortgage that is currently greater than the value of the secured property.
According to a report, refinancing a US$300,000 loan from 6.5 percent to a current rate of between four to 4.5 percent could save as much as US$500 a month. Refinancing such loans could add US$6 billion to consumer spending power and reduce the number of consumers suffering from default.
However, problems such as “rep and warranties” are turning into road blocks, as refinancing is often restricted. The initial lender or home-secured debts could hamper refinancing due to issues surrounding a home’s appraised value.
The FHFA is reviewing all the issues and will likely tweak some. It is also considering whether to allow home owners to refinance when their mortgages are still above 125 percent of the value of their home.
“What we are seeing is that, in general, refinancings are lower than you would think when you have a 30-year fixed rate below four percent. I think there are just a lot of people out there who are just kind of frozen,” said Jeff Kinney from Fannie Mae.
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