Famed Investor Bill Gross Calls For Massive Taxpayer-Backed Mortgage Refinance Initiative

[Amerigo Vespucci]

Famed Investor Bill Gross Calls For Massive Taxpayer-Backed Mortgage Refinance Initiative

http://www.huffingtonpost.com/2010/08/17/bill-gross-mortgage-refi-_n_685228.html



First Posted: 08-18-10 09:15 AM | Updated: 08-18-10 09:54 AM

The head of the world's biggest bond fund, bemoaning the slow economic recovery, reignited debate Tuesday by publicly supporting a massive new refinance program currently roiling the mortgage bond market by describing it as a form of fiscal stimulus that wouldn't add to the deficit.

Bill Gross, who runs Pacific Investment Management Co.'s $239 billion Total Return Fund, said that policymakers "should quickly re-engineer" a plan that would refinance all non-delinquent mortgages backed by the federal government. The rate on a 30-year fixed-rate mortgage averaged a record-low 4.44 percent in the week ending Aug. 12, according to taxpayer-owned mortgage giant Freddie Mac.

Taxpayers guarantee the mortgages of 37 million households, or two-thirds of all homeowners with a mortgage, according to a July 29 note by David Greenlaw, Morgan Stanley's chief U.S. fixed-income economist. That includes government agencies like the Federal Housing Administration as well as twin behemoths Fannie Mae and Freddie Mac. Greenlaw estimates about 18.5 million taxpayer-backed mortgages are at rates higher than 5.75 percent interest.

By refinancing those mortgages at current, lower rates, Greenlaw believes those homeowners would save $46 billion a year. Gross said the refi scheme would spur some $50-60 billion a year in new consumer spending and raise home prices between 5-10 percent. Forecasters, including Fannie Mae, say home prices are set to decline the rest of the year and into 2011. Former Federal Reserve Chairman Alan Greenspan said this month that a so-called double-dip recession is possible "if home prices go down."

In theory, the proposal would immediately help those homeowners, as they'd save on their monthly mortgage payment, and it could help the broader economy because homeowners could take the savings and spend it, spurring growth. And because homeowners -- particularly those who owe more on their mortgage than their house is worth -- would have more affordable payments, less of them would fall behind and face foreclosure, stabilizing the housing market and leading to an uptick in prices.

[Subdivisions]

1. We are in recovery. No further bailouts or stimulus is necessary. n/t

[blindpig]

2. Bullshit

While the banks and investors are sitting on piles of money? Government ought to force the financial sector to open the vault for fear of expropriation, they already got our money.

But of course it won't, Capitalists rule.