In his State of the Union address, the president proposed yet another effort to reduce the number of foreclosures by allowing mortgages not owned by Fannie Mae or Freddie Mac to be refinanced through the Federal Housing Administration. He announced the details Feb. 1
Many observers see this as election-year posturing since, as with most of Obama's foreclosure-fighting programs, this one needs cooperation from the big lenders.
The primary concern expressed after the announcement was the effect of dumping millions of mortgages on the stressed-out FHA.
Here's the problem, as Edward Pinto of the conservative American Enterprise Institute, among others, sees it:
The offer to refinance was extended to "responsible" homeowners, those current on their mortgages. CoreLogic, the research firm that tracks about 85 percent of all U.S. mortgages, says that might mean 28 million borrowers.
"Such a mass refinancing could once again roil the mortgage finance market, penalize savers, further delay the return of private capital, and create further uncertainty as to prepayment expectations," Pinto said. "This could lead to reduced demand resulting in higher housing finance costs in the future."
For 31/2 years, he said, "we have been using mortgage refinances as a 'cheap' stimulus, the results of which are highly questionable. The refinance process is largely a zero-sum game.
"Someone is currently receiving income on these mortgages or mortgage-backed securities, which income is lost upon refinance. This greatly reduces the stimulus value of the program. Instead, the focus must be on permanent private-sector jobs."
Pinto said using FHA as insurer for such a program will inundate the agency and detract from the real and pressing reform needed "to protect taxpayers, the families unknowingly getting risky loans, and the neighborhoods affected by its lending."
