In a normally functioning mortgage market, almost all homeowners would have refinanced their mortgages to take advantage of low rates. Yet today, low interest rates are doing little to stimulate the housing market because of other stresses, including declines in house prices, falling household incomes and banks’ wariness of making loans.
To change this dynamic, we propose a new program through which the federal government would direct the public and quasi-public entities that guarantee mortgages — Fannie Mae, Freddie Mac, Ginnie Mae, the Department of Veterans Affairs loan-guarantee program and the Federal Housing Administration — to make it far easier and quicker for homeowners to refinance.
This program would be simple: the agencies would direct loan servicers — the middlemen who monitor and report loan payments — to send a short application to all eligible borrowers promising to allow them to refinance with minimal paperwork. Servicers would receive a fixed fee for each mortgage they refinanced, which would be rolled into the mortgage to eliminate costs to taxpayers.
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