Last week, The New York Times reported that the Obama administration was considering a proposal to “allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent.”
The measure’s supporters tout this as an almost cost-free way to stimulate the economy, boost the housing market and reduce foreclosures. But universal refinancing is far from free and is poorly designed to stimulate either the economy or the housing market. Certainly, Fannie Mae and Freddie Mac, the huge finance companies now under government control, will have to allow some mortgage modifications in order to reduce their foreclosure losses. That calls for smart, selective policies, not universal refinancing.
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