Time to consider mass mortgage refinancings

Main Street taxpayers have bailed out Wall Street. Now it’s time for Wall Street to return the favor by footing the bill to help millions of honorable Main Street borrowers pay lower interest rates on their mortgages, something that should have happened years ago. Wall Street giving back to Main Street — imagine that!

We’re not talking about anything risky to taxpayers, or a magic fix for the housing market. We’re talking about picking some low-hanging fruit by doing one simple thing: helping borrowers who are current on their payments refinance high-interest mortgages on which taxpayers are already at risk. That would help taxpayers as well as borrowers, because lower monthly payments would stimulate the economy, support housing prices and reduce future defaults.

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I’m talking about providing a cheap, streamlined and simple way to refinance fixed-rate mortgages backed by Fannie Mae and Freddie Mac, which own about half the nation’s mortgages and are now effectively owned by the federal government. Fannie and Freddie creditors were bailed out in 2008 when Uncle Sam put the firms into conservatorship to avoid their having to file for bankruptcy; as we’ll soon see, those creditors, consisting primarily of big financial institutions, would bear the cost of helping homeowners.

Mass Fannie and Freddie mortgage refis could provide billions of dollars of economic stimulus and support the prices of homes, many Americans’ biggest single asset. All while costing taxpayers nothing.

This is entirely different from using taxpayer money to subsidize people who have defaulted on their mortgages, a proposal that stirred considerable resentment (including on my part) and gave birth to the tea party.

Rather, I’m talking about helping 13 million or so families who have played by the rules and kept up their house payments but haven’t been able to refinance their loans, often because their houses have fallen sharply in value. Remember, taxpayers are already on the hook for those loans; thus, refinancing them adds no risk, and arguably reduces it by shaving the monthly payment burden and giving homeowners less incentive to default.

Mass refis would produce interest savings averaging $3,200 a year per family, based on an average drop of two percentage points for mortgages averaging $160,000, according to statistics from a leading refi proposal. That’s $40 billion a year of economic stimulus, at no taxpayer cost. (In fact, it might increase federal tax revenues a bit by reducing homeowners’ interest deductions.)

No, this proposal didn’t emanate from some left-wing redistributionist think tank. It comes from Glenn Hubbard, an economic conservative who led George W. Bush’s Council of Economic Advisers and is currently dean of the Columbia Business School. His partners include Chris Mayer, who teaches housing at Columbia, and Alan Boyce, a mortgage market maven. Their plan, which you can find at www4.gsb.columbia.edu/realestate/research/housingcrisis, isn’t perfect, but it’s a well-thought-out starting point.