More on the Mortgage Refi Program

Last week the White House announced a program to help home owners who are current on their mortgages refinance their loans even if they are under water.  There are some limitations, in particular this applies to mortgages owned by or insured by Fannie Mae or Freddie Mac.   The program is beginning to generate some commentary and attention among bloggers and policy wonks.  Brookings Institute in Washington and the Econobrowser blog both favor the program while acknowledging that there are some costs to taxpayers and bond holders. 

In simple terms, home owners can refinance mortgages so the old mortgage is paid off. For the lender-bond holder-tax payer this means a loan paying 6%, 8% or more is being replaced with a loan paying about 4% resulting in a loss to the lender. For the home owner, monthly payments go down so available or disposable income goes up.  For housing this is a small plus. For the economy, a clear plus — much of that added income will be spent.

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