Another whiz-bang stimulus idea from Team Obama:
The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.
One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.
Well, yes. The people paying the mortgages will pay less; the people holding the mortgages will receive less. If Warren Buffet is the sole holder, then he will surely support this, since it is sort of like increasing his taxes and certainly represents an opportunity for him to sacrifice.
On the other hand, if the bondholders include the elderly and retired (by way of mutual funds or under-funded pension funds), maybe cutting their income is not such a grand idea.
As to why granny should switch to cat food so that some yuppie lawyer can hang on to the house that was bigger than he could afford, well - a friend of mine used to call the Democrats the party of random wealth transfers. I was never convinced that "random" was the precise word. Their intention is always to soak the rich and help their current notion of the deserving, and there is often some overlap between their target zone and their drop zone.
Still, this latest notion is just one more example of capricious rule changes during the game. How it will help investor confidence is beyond me.