It’s tough out there. Even though mortgage interest rates are sitting at historic lows, millions of homeowners are still struggling to make those mortgage payments.
In an effort to inoculate this predicament, two economists are proposing a government sponsored refinance program to help struggling homeowners.
The benefits of refinancing your 7-9% interest rate down to the 3-4% level would echo throughout your personal finance and the larger economy, however, a lot of banks and financiers aren’t allowing people to take advantage of such a “refi”.
Low interest rates aren’t always available to homeowners. Although there aren’t any hard, fast restrictions on refinancing your mortgage, banks aren’t opening the door for current homeowners in trouble. Increased requirements are preventing millions of refi’s. Guy Cecala, CEO and publisher of Inside Mortgage Finance spoke with NPR’s Chris Arnold on the nature of acquiring a refi in this market. “We’re not picking up anybody who’s been sitting on the fence for three years.”
It’s becoming increasingly difficult to attain a mortgage refinance in this market. In order to qualify, homeowners need good credit and plenty of equity on their home, approximately 20% more than what they owe, and in a market where under water mortgages are more common than the cold, the number of eligible homeowners is miniscule.
It makes sense. Banks don’t want to take on more risk, but what are under water homeowners supposed to do? With no real improvement in sight for the housing market’s price depression, the incentives to walk away from their mortgage and ruin their credit are ever growing.
So two economists have suggested that the government sponsor mortgage refinances. Under Chris Mayer and Glen Hubbard’s plan, around 25 million families could benefit from lower interest rates and increased savings in their pocket.
By lowering the interest rates for homeowners under a government backed and sponsored program, millions of homeowners will no longer have such strong incentives to walk away, and they’ll have more money to spend month to month, thus helping our ailing economy.
For the full story, much of which has been paraphrased here, you can click >>HERE<< and listen to it over at NPR.org.
IDEA: A Federal Refinance Program
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