Life, liberty and the right to a guaranteed, rock-bottom mortgage rate?
A pair of Columbia Business School profs have come up with a rather unique way to fix the nation's woes - they want to throw a great, big mortgage refi party for homeowners across the country.
R. Glenn Hubbard, dean of the Columbia Business School, and Chris Mayer, a professor of finance and economics and the school's senior vice dean, would like to refinance 30 million mortgages across the country down to a once unimaginable 4 percent.
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The duo contend this would both stabilize the reeling housing market while providing a $60 billion a year boost to an increasingly troubled economy as well. The average homeowner would wind up with hundreds of additional dollars to spend - money that is now being sucked into mortgage payments.
Mayer appeared on Tom Ashbrook's On Point radio program yesterday morning to tout the proposal.
Not exactly a pair of Ivory Tower lefties, Hubbard chaired the Council of Economic Advisors under President George W. Bush.
There's both much to be said for this idea - and some reasons to be concerned as well.
Let's start off with the good stuff.
First off, Uncle Sam won't be forced to dig into his already threadbare pockets to pay for this all - taxpayers are off the hook. Bondholders would be the ones to take the hit, settling for 4 percent instead of 6 percent.
The government's role would that of a catalyst for forcing the refinance - while sweeping, it would be limited to the 60 percent of all mortgages backed by Fannie Mae and Freddie Mac.
Second, the low rate mortgages, in turn, would be made available only to homeowners who have kept current on their payments.
Deadbeats and speculators need not apply.
But there is reason to be wary as well.
Basically, this would help lock everyone into their current homes - at current prices. In an area like Greater Boston, where home prices are arguably still inflated, this would simply preserve the status quo.
(The two Columbia professors, in an academic paper expounding on their proposal, contend this massive mortgage refinance would hold up housing prices by anywhere from 10 to 17 percent.)
As painful as the decline in housing prices has been to homeowners, it is also a potential boon to many buyers who have been previously locked out.
Moreover, the question remains whether a true housing recovery can take hold if prices are not allowed to find their true bottom.
That said, it's a lot better than the ineffective, muddle-through initiatives we have seen from the Obama folks.
