Earlier today, I summarized Macroeconomic Advisers’s analysis of a mass refinancing scheme. Joseph Gagnon, a fellow at the Peterson Institute for International Economics, took a look and he thinks they have underestimated the possible benefits. He e-mails his reasons:

1. They took a recent CBO study for their low range estimate of takeup of 10% and then added a high range estimate of 30%. But you should be aware that the CBO study assumed the 10-year Treasury yield would be 3.8% not the 2% that it currently is. At 3.8%, relatively few borrowers would want to refinance anyway. At 2%, the vast majority of borrowers will want to refinance. Of course, some of them will be able to do so without HARP, but many of them cannot. At current rates, I would say 30% is a low range estimate of additional refinancing from a HARP reform that truly removed the roadblocks to refinance.

2. Very few mortgages are held by individuals. Many are held by foreign governments, the Fed, and Fannie and Freddie, and these holdings will not affect consumption. The rest are held by banks, insurance companies, and pension funds. I would argue that the stockholders and prospective pension recipients of these institutions are not going to change their consumption much if there is a refinance boom.

The bottom line here is Macroeconomic Advisers thinks the policy will have a small positive impact, and Gagnon thinks it will have a big positive impact. So why not try it?