http://www.huffingtonpost.com/2010/08/17/bill-gross-mortgage-refi-_n_685228.html
August 18, 2010
The Huffington Post
Famed Investor Bill Gross Calls For Massive Taxpayer-Backed Mortgage
Refinance Initiative
The head of the world's biggest bond fund, bemoaning the slow economic
recovery, reignited debate Tuesday by publicly supporting a massive new
refinance program currently roiling the mortgage bond market by
describing it as a form of fiscal stimulus that wouldn't add to the
deficit.
Bill Gross, who runs Pacific Investment Management Co.'s $239 billion
Total Return Fund, said that policymakers "should quickly re-engineer"
a plan that would refinance all non-delinquent mortgages backed by the
federal government. The rate on a 30-year fixed-rate mortgage averaged
a record-low 4.44 percent in the week ending Aug. 12, according to
taxpayer-owned mortgage giant Freddie Mac.
Taxpayers guarantee the mortgages of 37 million households, or
two-thirds of all homeowners with a mortgage, according to a July 29
note by David Greenlaw, Morgan Stanley's chief U.S. fixed-income
economist. That includes government agencies like the Federal Housing
Administration as well as twin behemoths Fannie Mae and Freddie Mac.
Greenlaw estimates about 18.5 million taxpayer-backed mortgages are at
rates higher than 5.75 percent interest.
By refinancing those mortgages at current, lower rates, Greenlaw
believes those homeowners would save $46 billion a year. Gross said the
refi scheme would spur some $50-60 billion a year in new consumer
spending and raise home prices between 5-10 percent. Forecasters,
including Fannie Mae, say home prices are set to decline the rest of
the year and into 2011. Former Federal Reserve Chairman Alan Greenspan
said this month that a so-called double-dip recession is possible "if
home prices go down."
In theory, the proposal would immediately help those homeowners, as
they'd save on their monthly mortgage payment, and it could help the
broader economy because homeowners could take the savings and spend it,
spurring growth. And because homeowners -- particularly those who owe
more on their mortgage than their house is worth -- would have more
affordable payments, less of them would fall behind and face
foreclosure, stabilizing the housing market and leading to an uptick in
prices.
"It's the last real big thing that an administration can do that's
caught between a Republican and Democratic orthodoxy and the inability
to legislate -- certainly in front of the election, and maybe even
afterwards as we have more evenly balanced constituents in Congress,"
Gross told the Huffington Post during a brief interview in between
sessions at the administration's Conference on the Future of Housing
Finance, held at the Treasury Department in Washington. "It's the one
thing they can do that doesn't increase the deficit and that doesn't
require legislation."
"[W]e are not recommending any change to the qualification for new
mortgages -- only refis," Greenlaw wrote in his note. "Thus, there is
no subsidy involved, and credit quality actually improves somewhat due
to the lower payment burden. This implies fewer foreclosures going
forward and less credit risk for the guarantor of the mortgage (i.e.,
the U.S. government)."
Story continues below
Government officials have dismissed the idea.
<end of excerpt>
Rest at:
http://www.huffingtonpost.com/2010/08/17/bill-gross-mortgage-refi-_n_685228.html
Michael