The December 10th edition of Barrons included an article entitled “The Great American Refinancing”. It put forth an idea that has been embraced by both liberals and conservatives. The basic idea is that any homeowner who is current on their mortgage would have the ability to refinance their payments at the lowest rates available today. That rate is currently around 4%. Whether the homeowner has equity in the home or not would have no impact on the ability to refinance.
This plan could have several positive and lasting effects: 1. It could act as a permanent tax cut as long as people stay in their homes 2. It would steady home prices by slowing new delinquencies 3. It could strengthen credit quality by focusing on responsible buyers/homeowners, and in doing so, minimize the cost to taxpayers.
Though interest rates are low, many homeowners are reluctant to refinance because of the high fees, appraisals, income, and credit checks. In addition, banks are imposing high underwriting standards on performing loans, in order to keep the higher- yielding loans on their books.
Barrons states that this type of program could add $80 billion annually for years to come. If this process could be enacted in a timely and streamlined fashion, we, along with many others, believe it could be our way up and out of the real estate led crisis that started more than four years ago.