Americans owe $700 billion more than their homes are worth, and if nothing is done these underwater mortgages will keep dragging the housing market and the economy down with them.
So it was encouraging to hear that the Obama administration is preparing a plan to ease refinancings for underwater homeowners. The outlines of the proposal are unclear, but the administration seems likely to bypass the dysfunctional Congress and focus on the millions of homeowners whose loans are owned or backed by Fannie Mae and Freddie Mac, the government-controlled mortgage companies.
The administration also is said to be pursuing a new home rental program that could keep hundreds of thousands of foreclosed homes from flooding onto the market and further depressing prices.
If underwater homeowners with government-backed mortgages could refinance them at today’s low rates, around 4 percent, their mortgage payments would fall, many more could stay in their homes, the money they save would circulate through the economy and the housing market would have a better shot at stabilizing.
Obama may be able to skirt Congress, but he still will have to persuade the Federal Housing and Finance Authority, which oversees the federal mortgage programs, to go along with a plan that would require taxpayers to subsidize housing debt. Banks and the investors who buy the government-backed bonds also will fight any proposal that threatens their interest income or requires them to take on large amounts of unsecured risk. A mass refinancing of underwater homes would do both.
The current policy of standing and watching while families and home prices sink under wave after wave of foreclosures is not working. It’s time to throw underwater homeowners a lifeline — the chance to refinance their homes, and stay in them.
The Oregonian, Portland (Aug. 30)