Tags: Stiglitz | Zandi | mortgage | refinance

Stiglitz, Zandi: Government Should Facilitate Mortgage Refinancing

Monday, 13 Aug 2012 10:57 AM

The government needs to find a way to allow millions of Americans who owe more on their homes than they are worth to refinance, Joseph Stiglitz, a Columbia University economist, and Mark Zandi, chief economist at Moody’s Analytics, wrote in a New York Times Op-Ed.

More than 4 million Americans have lost their homes since the housing market began to tank six years ago, while another 3.5 million homeowners are in the foreclosure process or will be soon, the economists wrote.

With 13.5 million homeowners underwater, the number of people who might lose their homes is staggering, and Washington needs to act now, especially since a housing regulator shot down a White House effort to allow homeowners to write down mortgages.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

“With principal writedown no longer an option, the government needs to find a new way to facilitate mass mortgage refinancings. With rates at record lows, refinancing would allow homeowners to significantly reduce their monthly payments, freeing up money to spend on other things. A mass refinancing program would work like a potent tax cut,” the pair wrote in The Times.

“Refinancing would also significantly reduce the chance of default for underwater homeowners. With fewer losses from past loans burdening their balance sheets, lenders could make more new loans, and communities plagued by mass foreclosures might see relief from blight.”

The Federal Housing Finance Agency, the regulator overseeing Fannie Mae and Freddie Mac, blocked a proposal by the Obama administration to let those mortgage giants forgive principal on home loans, the argument being that relieving stressed homeowners of housing debt would encourage others to halt payments.

“The anticipated benefits do not outweigh the costs and risks,” said Edward DeMarco, head of the Federal Housing Finance Agency, according to Reuters.

The decision drew swift rebuke from the Obama administration.

“I do not believe it is the best decision for the country,” Treasury Secretary Timothy Geithner told DeMarco in a letter released to the media, Reuters added.

The use of targeted principal reduction would “provide much needed help to a significant number of troubled homeowners, help repair the nation’s housing market and result in a net benefit to taxpayers,” Geithner added.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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