There has been an increase in the coverage about the Obama Administration’s desire to stimulate the housing market during the last few weeks. Housing stimulus and the reform of the housing finance agencies have taken a back seat during the summer months with the debt limit drama, but there seems to be renewed interest. Many economists tie their predictions of a full economic recovery to the returned strength in the housing market.
The concept of a kind of national refinance program for homeowners that would reduce borrowers’ interest rates would provide a simultaneous housing and economic stimulus. If the program were able to lower payments for the average homeowner by just $150 per month, it would provide $1800 in annual savings.
Interest rates are at historic lows and many people are taking advantage by refinancing their mortgage loans. According to Bankrate.com, the average 30 year fixed rate as of August 25, 2011 was 4.41% and a 5 year arm was 3.12%. With rates so low, lenders are already experiencing heavy volumes and taking 60-90 days to refinance conventional mortgages.
Forgetting about the issues that would be involved for banks and financial services companies such as prepayment risk, valuation of servicing rights and the sheer volume of refinance requests already in the pipeline, the concept of a national refinance program has merits to the consumer, especially seniors and Baby Boomers.
The program could not only benefit seniors struggling with rises in prices for food, gas and energy, but would also provide a benefit for seniors and baby boomers to remain in their homes longer, thus delaying entry into assisted living or skilled nursing facilities. As seniors await for the annual cost of living adjustments for next year, a home refinance might make the lack of (or small) increase more palatable in the short term. For those living on a fixed income, an extra $150 per month is a meaningful amount of money that can be used in many ways. Unfortunately, there has been little talk about programs for purchasing incentives for those thinking of downsizing or becoming homeowners.
If Congress is serious about reforming the tax code to address fundamental issues on entitlement programs (tied to the psyche of seniors and Baby Boomers), the mortgage interest deduction will be discussed as a way to increase taxes by changing the rules associated with that part of the tax code. Should this happen, a national refinance program may be the one last hurrah for the housing market before that perk is either removed or substantially changed.
While the mechanics, guidelines or costs of the program have yet to be fully discussed or revealed, the American homeowner could use a few extra dollars in their monthly disposable income before the holidays. This type of program could provide an economic benefit but also provide a positive boost in consumer sentiment on the verge of the 2012 election season.
If a national refinance program is really on the horizon, let’s hope that the requirements don’t hurt the chances for seniors and Baby Boomers to take advantage of the program and its benefits. The program, while providing economic and psychiatric assistance to Americans, can also be a policy tool to help with the demographic challenges of America’s aging population.