Mortgage Savings: Leaders Seek Refinancing Options Millions of homeowners can't qualify for current low interest rates. If they could, they'd save hundreds of dollars a month on their home loans, which might give them money to spend elsewhere. The president and lawmakers in both parties want to help more homeowners refinance, but critics say it would come at the expense of investors.
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Mortgage Savings: Leaders Seek Refinancing Options

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Mortgage Savings: Leaders Seek Refinancing Options

Mortgage Savings: Leaders Seek Refinancing Options

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DAVID GREENE, host: It's MORNING EDITION from NPR News. Good morning. I'm David Greene.

STEVE INSKEEP, host: And I'm Steve Inskeep.

The economic plan that President Obama proposed last week included an idea for American homeowners. Interest rates are so low that millions of Americans could save money by refinancing their home loans, but they can't get new loans for many reasons. For example, that their homes are no longer worth enough to serve as collateral.

Treasury Secretary Tim Geithner said on this program last week that the government can help and need not even wait for an act of Congress. But the idea is generating enough interest that Congress is getting involved all the same. NPR's Chris Arnold reports.

CHRIS ARNOLD: In his recent speech about creating jobs, President Obama also took time to say that he wants to help more Americans save money on their mortgages.

PRESIDENT BARACK OBAMA: To help responsible homeowners, we're going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near four percent. That's a step...


ARNOLD: That drew loud applause that included at least some Republican lawmakers.

OBAMA: I know you guys must be for this, because that's a step that can put more than $2,000 a year in a family's pocket and give a lift to an economy still burdened by the drop in housing prices.

ARNOLD: At a Senate hearing yesterday, lawmakers from both parties spoke out in favor of the idea. Democrat Barbara Boxer has introduced legislation with the same aim - to allow millions more Americans to refinance. That's even if, with the drop in home prices, they're underwater; that means they owe more than their home is worth.

SENATOR BARBARA BOXER: If you have paid your mortgage all along through all these difficult times, and it is at a high interest rate, but you never missed a payment as the value of your home went down and down and down, you should have a chance if you want to refinance at the current levels.

ARNOLD: And proponents say there is actually a way to do that without more government spending. Economist Mark Zandi with Moody's testified at the hearing.

MARK ZANDI: I think there are ways to do things here that don't cost taxpayers money at all, any money. And I think this is one of those things.

ARNOLD: The crux of idea is this. These people who are stuck at six or seven or eight percent interest rates, for most of them their loans are guaranteed by the mortgage firms Fannie Mae and Freddie Mac. So if Fannie and Freddie agreed to guarantee new loans for those people at today's lower interest rates, then the private sector would make those loans. And Barbara Boxer says that wouldn't cost Fannie and Freddie or taxpayers anything.

BOXER: Fannie and Freddie actually make money on this - as we looked at the CBO analysis, about $100 million - because it would stop many people from defaulting right away.

ARNOLD: The CBO - that's the Congressional Budget Office. And the idea is that fewer foreclosures could mean less taxpayer bailout money for Fannie and Freddie.

ARNOLD: Republican Senator Johnny Isakson of Georgia is a co-sponsor of the bill. He also thinks it would result in fewer people deciding to walk away from their houses.

SENATOR JOHNNY ISAKSON: And it should help to stabilize home values in the long run. And I think it's something Fannie and Freddie ought to do by - I'm not interested in pride of authorship - if they'll do it tomorrow by policy, we're ready for them to do it.

ARNOLD: Isakson is saying that Fannie and Freddie don't need an act of Congress to do this. And the Obama administration is pursuing the idea without any new legislation, by expanding a current federal refinancing program. But some economists at the hearing had reservations. Mark Calabria is with the conservative-leaning Cato Institute.

MARK CALABRIA: The question that I have in my mind, a mortgage is one person's liability. It's another persona's asset.

ARNOLD: In other words, the homeowner would be saving money with a lower interest rate. But an investor in mortgage bonds somewhere was making money off that higher interest rate. So such bond-holders would lose money, or at least they wouldn't make as much money.

CALABRIA: So you're increasing somebody else's wealth by reducing their monthly payment. You're decreasing somebody else's wealth by reducing their bond payment. It's not clear to me as an economist that the effect on consumption is going to any different than zero.

ARNOLD: And some critics say the move just wouldn't be fair to those investors. Also, it's still unclear how many people the plan would ultimately reach. Even proponents say everything depends on how it's implemented. Some say you might reach fewer than a million. Or they say you might reach 10 or even 20 million, depending on the details.

Chris Arnold, NPR News.

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