Congress Weighs Homeowner Refinancing Plan With mortgage rates at historic lows, lawmakers are weighing a proposal that could enable 37 million homeowners to refinance their mortgages at little or no cost to taxpayers. But some economists worry that refinancing all these people would ultimately hurt banks and other investors.
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Congress Weighs Big Homeowner Refinancing Plan

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Congress Weighs Big Homeowner Refinancing Plan

Congress Weighs Big Homeowner Refinancing Plan

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With much of middle class America still feeling the sting of the housing market collapse, a newly proposed law is aimed at helping homeowners who can't qualify for mortgage refinancing. Supporters of the legislation say it could allow many people to save up to $500 a month on their mortgages.

NPR's Chris Arnold has more.

CHRIS ARNOLD: Lawmakers think that they can refinance millions of homeowners, save each of them thousands of dollars a year. And the most attractive thing, they say this actually won't cost taxpayers any money. The vehicle for pulling that off, they say, is today's low interest rates.

(Soundbite of a commercial)

Unidentified Man: Attention mortgage shoppers: Rates are at 50-year lows. Mortgage rates have been below 4.875 all year...

ARNOLD: Mortgage rates just hit another record low this past week. So if homeowners can refinance these days, they can often save a bunch of money. The problem is that millions of people cannot qualify to refinance. Many are underwater, meaning they owe more than their house is worth or they have bad credit or they've lost some income. So this new proposal is to let those people take advantage of the low rates.

Representative DENNIS CARDOZA (Democrat, California): This is a market-based solution.

ARNOLD: That's Democratic Congressman Dennis Cardoza of California. He introduced the bill this past week. He explains that the vast majority of home loans out there are already guaranteed by the federal government, many through the mortgage giants Fannie Mae and Freddie Mac.

Rep. CARDOZA: The federal government is already on the hook for everyone who defaults on these mortgages - 37 million American mortgages.

ARNOLD: Cardoza says a massive refinancing of these loans at today's lower market rates would make these loans more affordable for people. That would put money in their pockets to go out and spend and stimulate the economy. And all these people need is for the government to say it will guarantee the more affordable loan.

So basically the government would be swapping out its guarantee from a more expensive loan and applying it to one with lower payments - one that's less likely to default and go into foreclosure.

Rep. CARDOZA: It would allow people to use the market to refinance so they get lower interest rates on their current home mortgages.

ARNOLD: Still, some economists aren't so crazy about the idea. Anthony Sanders is a real estate finance professor at George Mason University.

Professor ANTHONY SANDERS (School of Management, George Mason University): I think the government should back away 'cause everything they've tried, with good intent, has not worked.

ARNOLD: Sanders doesn't believe that the program wouldn't cost any money. And he worries about unintended consequences. Maybe refinancing all these people would hurt banks, or other investors such as pension funds - they wouldn't be getting those higher interest-rate payments anymore.

And Sanders thinks the government has just done too much already to try to prop up the housing market.

Prof. SANDERS: Why are we absolutely dead set on keeping housing prices artificially high? I think it's unfair to people trying to get into the market.

ARNOLD: Still, Congressman Cardoza didn't exactly dream up this plan himself and it's not something that just appeals to Democrats. The proposal actually comes from a pair of economists at Columbia University, one of whom is Glenn Hubbard, the former head of President George W. Bush's economic team.

Professor GLENN HUBBARD (Dean, Columbia School of Business): Well, I don't even view this as an intervention in the way we've done before.

ARNOLD: Hubbard says the government would not be taking on any more risk or bailing people out with a subsidy. And Hubbard - again, a Republican - thinks that there could be solid bipartisan support.

Prof. HUBBARD: I would guess that there's a good chance of that. We're talking about 37 million homeowners. So I think, yes, there should be.

ARNOLD: Are you having specific conversations with people on both sides of the aisle in Congress and the Senate right now?

Prof. HUBBARD: Yes.

ARNOLD: Bipartisan cooperation before the elections is probably unlikely. But Hubbard thinks that after the elections, this proposal could get some traction.

Chris Arnold, NPR News.

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