Can’t We Learn to Stop Worrying and Love Mass Refinancing?

Who are these losers? They are the holders of private (or non-agency) mortgage-backed security. Pension funds, retirement plans, and mutual funds would take a big hit because they own an outsized share the particular securities likely to be impacted by the president’s plan.

Last week’s $26 billion deal between the government and banks accused of mortgage fraud was the most significant effort to hold financial firms accountable for malpractice in the housing bust. The feds plan on using most of the money as a life-raft for homeowners who are underwater, or owing more on their mortgage than the value of the house.

But the deal is insufficient to address the housing crisis, and the U.S. economy still needs massive mortgage refinancing to flush out the worst of our debt overhang.

Since August, rumors have been flying around Washington that the White House was this close to putting out a plan to massively expand mortgage refinancing through its government-sponsored enterprises, such as Fannie Mae. This plan would let more homeowners refinance at historically low rates. Like waving a magic stimulus wand, it would conjure billions of dollars of relief for homeowners without Congress’ approval.


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