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Little gain from mortgage refinance plan: CBO
September 8, 2011 / 2:51 PM / 6 years ago

Little gain from mortgage refinance plan: CBO

WASHINGTON (Reuters) - An increased government effort to ease the way for refinancing mortgages would do little for the housing market, congressional budget analysts said in a report that could undercut an Obama administration push to do more for borrowers.

Government plans to make refinancing easier would “not address many of the problems facing the U.S. housing market,” the nonpartisan Congressional Budget Office said.

“Although such a program would benefit borrowers and would lower federal guarantee costs, it would be costly to mortgage investors,” according to the report.

The CBO argued that estimated benefits would be “small relative to the size of the housing market, the mortgage market, and the overall economy.”

A refinancing initiative under consideration by the White House would allow certain borrowers to refinance loans that are backed by government-owned Fannie Mae FNMA.OB and Freddie Mac FMCC.OB or the Federal Housing Administration (FHA).

The CBO working paper dampens the likelihood the White House can find broad support for a proposal to offer more government support for refinancings. Under the White House initiative, monthly payments by borrowers would be cut, freeing up cash for other business spending.

“A large-scale mortgage refinancing program” could spur the refinancing of 2.9 million mortgages totaling $428 billion, the CBO said. The plan would prevent 111,000 defaults that would otherwise occur, according to the report.

From the borrowers perspective, it would provide $7.4 billion in savings from lower mortgage payments in the first year of the program.

Offsetting any savings in lower monthly payments, private investors would take a hit, the CBO said, losing about $13 billion to $15 billion, according to the CBO estimates, as loans held by bondholders would be paid back early.

The nonpartisan group said the losses to government agencies invested in mortgage-backed securities, including the Federal Reserve and Treasury Department, would amount to $4.5 billion.

Combined with the FHA, Fannie Mae and Freddie Mac support about 90 percent of the mortgage market. The CBO estimates defaults prevented by a refinancing plan would save the FHA and the two government-sponsored enterprises about $3.9 billion.

The administration has been urging Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency, to consider changing existing refinancing programs to help reduce homeowners’ mortgages. The agency’s acting director, Edward DeMarco, has said his main mission is to conserve the assets held by the two firms.

Reporting by Margaret Chadbourn; editing by Jeffrey Benkoe

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