Early optimism for Obama’s latest mass refi push
The Obama administration has lowered the refinancing fees for Americans with government-insured mortgages issued before June 2009, as Brad reported this morning. It marks the White House’s latest attempt to rev up mass refinancing in hopes of preventing future defaults and foreclosures, and outside analysts are optimistic about its impact.
The change will save the average qualified mortgage-holder about $1,000 a year in refinancing. In a new research note, Morgan Stanley writes that this shift “creates a significant improvement in refinancing incentives” and could lead to more refinancing, as the administration hopes. Chris Mayer, a real estate professor at Columbia University, is similarly optimistic.
“There are too many barriers to mass refinancing,” Mayer says. “It’s a no-brainer, and it’s likely to help the process.” The administration estimates that the lower fees will accelerate mass refinancing to the tune of two to three million additional borrowers. Mayer agrees that goal seems reasonable. He points out that the qualifying June 2009 cutoff intends to target mortgages issued in 2007 and 2008, when underwriting was exceptionally poor.
The move still, however, falls short of the ambitious, $10 billion housing reform plan that Obama unveiled earlier this year and intends to send to Congress. But in recent weeks, the White House has begun reviving its mass refinancing efforts through the government-sponsored housing giants, after the programs intended to do so since 2009 have largely fallen short.
What’s more by making refinancing cheaper and accessible to more mortgage holders, the Obama administration could also encourage private mortgage servicers to lower their refinancing costs as well. “When you’re facing competition, it forces you to offer a more attractive rate,” says Mayer. “Competing on refinancing is a good start.” Morgan Stanley raises the same question but believes it “remains to be seen” whether such competition will actually materialize.