In a recent New York Times op-ed, Dean Glenn Hubbard, the Russell L. Carson Professor of Finance and Economics, and Senior Vice Dean Chris Mayer, the Paul Milstein Professor of Real Estate, urge such government-controlled housing giants as Fannie Mae and Freddie Mac to refinance existing mortgages at current market rates.
Many borrowers today are unable to take advantage of historic low mortgage rates because of falling home values, declining incomes, and tight lending standards. The plan would allow as many as 30 million US homeowners to refinance their mortgages at record low interest rates regardless of their credit situation.
“This program would be simple,” the authors write. “The agencies would direct loan servicers — the middlemen who monitor and report loan payments — to send a short application to all eligible borrowers promising to allow them to refinance with minimal paperwork. Servicers would receive a fixed fee for each mortgage they refinanced, which would be rolled into the mortgage to eliminate costs to taxpayers.”
Fewer than 450,000 borrowers have received permanent loan modifications under the Obama administration’s current foreclosure prevention program, the Home Affordable Modification Program. On Tuesday, Representative Dennis Cardoza of California unveiled a mortgage modification bill — the Housing Opportunity and Mortgage Equity Act — modeled after Hubbard and Mayer’s proposal.
Hubbard and Mayer have developed a series of frequently asked questions detailing how the program would work and how it would affect the federal budget deficit, among other issues.