Desperate times, desperate measures. Proposal to guarantee rock bottom mortgage rates for all takes flight
Life, liberty, and a guaranteed, rock bottom mortgage rate?
A proposal for a great, big national mortgage refi party may turn out to be more than talk radio/blog fodder after all.
The Obama Administration is studying plans that would guarantee a 4 percent interest rate for tens of millions of homeowners with federally backed mortgages, The New York Times reports.
I blogged about the proposal a couple weeks ago after hearing one of the proponents, a Columbia Business School prof, make the pitch on Tom Ashbrook's On Point radio program.
There are appealing aspects to the plan - bondholders, not taxpayers, would take the hit. Better yet, it would act as a giant stimulus plan for the economy, freeing up as much as $85 billion in potential consumer spending that is now being sucked into mortgage payments.
Moreover, it may not need Congressional approval, the Times notes. That would let the Obama folks sidestep all the Tea Party rock heads.
As I noted in my earlier post, this is not a liberal Democrat plan - one of the co-authors, Glenn Hubbard, dean of the Columbia Business School, chaired the Council of Economic Advisers under President George W. Bush.
All that said, the plan would essentially try and stop housing prices from declining further, instead of letting the market fall into until it hits bottom.
We've seen a variety of fumbling moves out of Washington, both by Congress and the Obama Administration, to try and "stabilize" the housing market and halt the decline in prices. So far, all it's done is delay the inevitable and make things worse.
Moreover, in a market like Greater Boston, where prices arguably remain artificially high, keeping values inflated may not be a solution many would-be buyers would endorse.
Yet this proposal, which could knock the rates down to 4 percent on as many as 30 million mortgages, may actually be big and bold enough to succeed where other fiddling - such as the disastrous home buyer tax credit - has failed miserably.
Finally, the proposal, as put forth by the Columbia profs, would have limited eligibility to homeowners who have kept current on their mortgages.
Reading between the lines of the Times story, the Obama folks supposedly haven't decided yet whether to bar homeowners who have fallen behind on their payments.
Sorry, but turning this into another deadbeat bailout would be the kiss of death for this plan.
