In the News
Note: If allowed to refinance at today’s rate, a borrower who has been dutifully making monthly payments on, say, a $200,000 government mortgage at a 6 percent rate could save around $3,000 every year. There are almost 600,000 eligible government mortgages in Massachusetts; nationally, this could provide the economy with a $70 billion boost—where it’s needed most—in the family pocketbook.
Refinancing, a market solution
By Scott Brown
Boston Globe
September 29, 2011
BEFORE I was elected, I was a real estate attorney in Massachusetts for more than 20 years, working with families as they bought and sold homes or refinanced them when interest rates dropped. For many, home ownership is more than a financial investment— it’s a long-term commitment to a community, its schools and businesses.
Unfortunately, too many Bay Staters are facing sharply declining home values, which has economic ripple effects that tear apart the fabric that binds communities together. About 234,000 homeowners in the state now owe more than their homes are worth. That’s about 16 percent of the market. Massachusetts ranks second in the nation in total ‘‘upside-down’’ mortgage debt. Even for those who live in towns that are in better shape, seeing a home—a key retirement nest egg— decline in value is not a confidence-booster for the economy.
So what can be done? When mortgage rates dropped from 7 percent to nearly 5 percent in 2002 and 2003, 85 percent of borrowers with higher-rate mortgages refinanced, and billions of dollars in disposable income was suddenly free to be invested or spent on goods and services. The economy improved. Today, with mortgage rates dropping below 4 percent, millions of borrowers who are making their payments every month should again be rushing to the bank to refinance.
Unfortunately many of these homeowners can’t because the federal government is like a giant boulder blocking the road. With taxpayer-owned Fannie Mae and Freddie Mac and other government agencies now holding or guaranteeing 37 million mortgages nationwide, the bulk of the mortgage finance market is in their hands. Yet, Fannie and Freddie don’t make it easy for people to refinance. Their red-tape and high fees discourage borrowers and banks alike. Even for borrowers who are not underwater, refinancing with the government can be like signing up for a month of visits to the Registry of Motor Vehicles. Meanwhile the economy worsens.
But there is a solution, one that has the support of a bipartisan group of senators, myself included, as well as backing by both President Barack Obama and Glenn Hubbard, former chairman of the Council of Economic Advisers. If allowed to refinance at today’s rate, a borrower who has been dutifully making monthly payments on, say, a $200,000 government mortgage at a 6 percent rate could save around $3,000 every year. There are almost 600,000 eligible government mortgages in Massachusetts; nationally, this could provide the economy with a $70 billion boost—where it’s needed most—in the family pocketbook.
If done correctly, allowing refinancing of government mortgages will save taxpayer money. As the mortgage guarantor, the federal government is already stuck with owning the home if the homeowner defaults; lower monthly payments for responsible homeowners would reduce the risk of foreclosures. And for investors in mortgage-backed securities, it would be better to see the mortgage succeed at a lower rate than fail.
Homeowners don’t want a handout, they just want the opportunity to make good on the contract they entered into the same way others have. This proposal doesn’t give away new government money, increase the government’s exposure, or reduce the principal owed. It creates an opportunity to refinance at market rates, helping families continue to invest in their homes and communities.
For borrowers who can no longer make their payments and need to sell, streamlining the short-sale process is another important step to prevent foreclosures. More short sales would help clear out housing inventory and help first-time homebuyers get into the market. But many realtors don’t even bother showing short-sale properties to buyers because buying a short-sale property can be a nine-month bureaucratic headache. The government needs to respond to short-sale applications from homeowners in a more reasonable period of time.
Working together on these initiatives, we can start to get our economy past the mortgage crisis.
