Big Mortgage ReFi – MS chimes in

A reader wrote me this morning, “Where’s the Beef?” I’ve gone out on a limb suggesting that something rather large was in the offing regarding a plan for a big mortgage Refi. On 9/21 I said that some details would be forthcoming about now. All I get is silence from Treasury, the White House or the FHFA. I’m not ready to throw in the towel on this one just yet.

It’s one thing when a blogger like me starts a rumor on a Mega Deal like this. It’s quite another when big shots like Morgan Stanley jump on the bandwagon. This from David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist):

Ben White at Politico reports that an Obama reelection campaign source has told him that the Administration may soon try to launch a sweeping "mortgage modification" program This report makes some sense. Recent polls show that Obama is trailing both of the leading Republican candidates. And, if the economy deteriorates, the President is likely to fall further behind. Since it seems increasingly unlikely that the Administration will be able to persuade Congress to adopt all of the measures included in Obama's latest economic stimulus proposal, it's not too surprising to learn that political operatives are starting to push for measures that do not require Congressional action.

Of course, from our perspective, a streamlined refi program would appear to represent another stimulus option that does not require Congressional approval. To be sure, there are significant hurdles to adoption of both streamlined refi and mortgage mod at this point -- the most obvious being the FHFA.

The article from Politico that got Greenlaw excited:

OBAMA CAMPAIGN EAGER FOR BIG MORTGAGE FIX?

Top source tells M.M. that senior Democrats aligned with the Obama 2012 campaign are pushing hard to see a much bigger federal mortgage modification program put into place as soon as possible to start bringing relief to middle class homeowners well in advance of the 2012 election. The new effort would be yet another attempt to address the biggest drag on the economy: U.S. consumers saddled with too much mortgage debt, little or no equity and not enough extra cash to drive the kind of spending necessary to fuel faster growth and more robust job creation.

I think Greenlaw is right. The hang-up to a deal is the FHFA. The Federal Reserve has facilitated a ReFi with Operation Twist and the decision to re-invest principal proceeds from its MBS holdings back into more MBS (a significant policy change).

In order to have a "party" all that is needed is to have FHFA waive both the income and asset requirements for a Refi of performing mortgages held by Fannie or Freddie. Bernanke spoke about this yesterday in his presentation to Congress. He said that that a bank lender should be willing to ReFi a borrower who is current as it increases the probability that the borrower will stay current. I think he was actually speaking to Mr. DeMarco at the FHA when he said these words.

The next chapter of this story has to come from the FHFA. I’m looking for a statement that clarifies the rules for a Refi in the not too distant future. This ball’s in DeMarco’s court.