Bill Gross of PIMCO: REFI for everyone?

[mshan]

At Tuesday’s summit on housing finance, Pacific Investment Management’s Bill Gross plugged a plan floated a few weeks ago that would allow millions of homeowners to refinance their mortgages at today’s rates, which are the lowest in generations.

With Treasury Secretary Timothy Geithner moderating a panel, Mr. Gross said the U.S. could easily refinance every current mortgage borrower, who is paying a rate above 5 percent, with a loan backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration, returning tens of billions in savings.
He warned that the American economy was slowing and that the lack of additional stimulus “will slow it to a snail’s pace, incapable of providing capable job growth going forward.”

Massive refinancing of the nearly 60 percent of mortgages backed by the government that are one full percentage point above today’s 4.5 percent mortgage rates would provide quick stimulus “as well as a potential lift of 5-10 percent in terms of housing prices,” he said.

Mr. Geithner and other panelists didn’t address the refi proposal, which has caused lots of heartburn for mortgage-bond investors in recent weeks.
To be sure, government officials have dismissed any idea that such a plan was in the works. Others have pointed out that Fannie, Freddie, and the FHA have already come up with other methods to “streamline” refinance homeowners who owe more than their homes are worth.

http://blogs.wsj.com/developments/2010/08/17/bill-gross-refinance-wave-could-lift-home-prices/

Would this really work as effective economic stimulus? And how would it stack up, in terms of ultimate effectiveness and efficacy, vs. principal reduction?

 

[theeedude]

We need a second stimulus not more government backed financial instrument risk taking.

 

[zephyrprime]

Anything can work as a stimulus if it pumps money into the economy. ANYTHING. If the government just started buying toilet paper for everyone, that would stimulate the economy too. The issue isn't whether or not it would work in the short term. Anything will work in the short term. The issue is what are the ramifications in the long term.

Ultimately, either unhindered money has to be printed or debt has to be forgiven. That is the ONLY way out of this situation.

 

[MotF Bane]

We need a second stimulus not more government backed financial instrument risk taking.

Wrong on the first, right on the second. So close, and yet so far.

 

[Moonbeam]

All housing should be owned by the government and leased for one year by bid. Those not bidding sleep in the street. This would insure that folk who bought long ago don't squat on valuable land. Taxes could probably be cut to nothing. Folk who work could lease near where they work of farther away as they chose. The poor could lease small homes in the middle of nowhere and grow their own food, maybe having a negative lease.

 

[Thump553]

Would that plan include refi of homes underwater, or refis for people whose income wouldn't otherwise qualify (unemployed, etc). At first glance such a plan would through an inordinate amount of risk upon Fannie Mae, etc. for dubious stimulus type benefit. And what would the effect be on private lenders-wouldn't their new business dry up almost completely, thus dooming another industry.

Doesn't seem to be very well thought out. The toilet paper idea has more appeal.

 

[CycloWizard]

I have a better idea: quit putting band-aids to hold a limb on long after it should have been amputated. Inflating housing prices again is not a solution. Want the economy improve? Then quit dicking around with every knob on the control panel and let people know that they are again in control of their own destinies, that their best laid plans won't be ruined by more government intervention, and that the rules of the game won't change every week.

 

[Jaskalas]

Aren't planned economies grand?

 

[theeedude]

Wrong on the first, right on the second. So close, and yet so far.

Second dip or second stimulus, your choice.

 

[ProfJohn]

Bad plan because it only helps the people who have a mortgage with a rate over 5%
What about everyone else?

You want a good stimulus?

Suspend the employee contribution to FICA for 6 months. That would pump billions of dollars into the economy by giving people with jobs more spending money.

 

[BoberFett]

Second dip or second stimulus, your choice.

So then later we can have a third stimulus to prevent another dip?

And a fourth stimulus to prevent another dip?

Dips are corrections. They're supposed to happen.

 

[PeshakJang]

Second dip or second stimulus, your choice.

The first one didn't work, so we need a second?

When the second one doesn't work, what should we do then?

You're like a guy with a roulette system. Keep doubling down until you win, right?

"This time...... I'm positive......."

 

[PokerGuy]

Second dip or second stimulus, your choice.

More likely, second stimulus AND a second dip, and the dip will be more severe as we'll be paying even more for the second porkulus spending spree. No thanks.

 

[PeshakJang]

More likely, second stimulus AND a second dip, and the dip will be more severe as we'll be paying even more for the second porkulus spending spree. No thanks.

Hey... another shot of heroine or you come down. Your choice.

It's obviously a better idea to do another shot of heroine.

 

[MotF Bane]

Second dip or second stimulus, your choice.

The correction needs to happen.

 

[Thump553]

Bad plan because it only helps the people who have a mortgage with a rate over 5%
What about everyone else?

You want a good stimulus?

Suspend the employee contribution to FICA for 6 months. That would pump billions of dollars into the economy by giving people with jobs more spending money.

I've heard that proposed by several politicians. It frankly has a lot more appeal. Besides the reasons you stated, the FICA vacation would (a) reward those with an honest paycheck-underground economy types and nonworkers are passed by, (b) it would infuse the economy with immediate cash, (c) no governmental type planning on how and where the money is spent-if you want to blow yours on a kewpie doll collection, so be it and (d) it is somewhat progressive tax relief, meaning less paid workers get a higher percentage of relief.

Self-employed persons would see a less immediate benefit to this type of stimulus, as well generally pay our FICA taxes quarterly. OTOH our FICA taxes are higher.

I wonder what the cost of such a giveback would be, and how Congress would pay for the uncollected FICA taxes (for SS, Medicare, etc.). Unfunded liability would be amathema to the GOP/teabaggers, and quite a few other people too.

 

[theeedude]

It's only going to require a bigger stimulus the longer we wait. It's like medicine, an ounce of prevention is worth a pound of cure.

 

[OCGuy]

Well I would make an extreme metric shit-ton of money, but I will put self-interest aside.

 

[Fingolfin269]

I can handle my payments as they currently stand but would gladly accept a free refi if the government is offering one up. This would free up cash I could use elsewhere... Like buying random shit I wouldn't otherwise be buying.

 

[BoberFett]

it's only going to require a bigger stimulus the longer we wait. It's like medicine, an ounce of prevention is worth a pound of cure.

lol

 

[sandorski]

The first one didn't work, so we need a second?

When the second one doesn't work, what should we do then?

You're like a guy with a roulette system. Keep doubling down until you win, right?

"This time...... I'm positive......."

The first one was too small.

 

[dmcowen674]

Aren't planned economies grand?

All these band-aids will not address the issue, the fact that there are no jobs to support the economy, planned or otherwise.

 

[Moonbeam]

All these band-aids will not address the issue, the fact that there are no jobs to support the economy, planned or otherwise.

If a job is required to live a decent life then the government has to supply jobs. A government that creates a miserable people has to die.

 

[ProfJohn]

All these band-aids will not address the issue, the fact that there are no jobs to support the economy, planned or otherwise.

There are no jobs because of all the uncertainty within the economy.

Some of it is related to the normal business cycle, but a lot of it is related to the Democrats and their anti-business mentality.

Obamacare, cap&trade, card check, the end of the Bush tax cuts etc etc all of these items are anti-business and all over them are supported by the Democrats. They are creating an environment where a lot of businesses are afraid to hire because they don't know what the future will look like.

 

[PeshakJang]

It's only going to require a bigger stimulus the longer we wait. It's like medicine, an ounce of prevention is worth a pound of cure.

Nope, it's like heroin. You gotta keep doing more and more and it does less and less until eventually you either come down or OD.

Should we go cold turkey and hurt a little, or get nice and addicted and have Britain find us stroked out in Mexico's basement?