Obama’s latest push for mortgage refinancing

Adriene Hill Jan 30, 2012

Adriene Hill: In his state of the union address President Obama sketched out a plan to help homeowners who are current on their mortgages to refinance.

We’re still waiting for details of the program, but the idea sounds pretty good to Allan Sloan. He’s editor-at-large at Fortune Magazine and joins us now. Good morning Allan.

Allan Sloan: Good morning Adriene.

Hill: So why do you think this proposal is such a big deal?

Sloan: Because if it’s done the right way, it amounts to Wall Street bailing out honorable Main Street homeowners — who’s tax money was used to bailout Wall Street. You’d make life easier for maybe 20 million families by reducing their monthly interest payments at no cost to the taxpayers. It’s about $60 billion a year of economic stimulus. Also, it’s obvious economic justice by helping people who, by no fault of their own, can’t refinance.

Hill: Now, explain — how is this Wall Street bailing out Main Street?

Sloan: Because the money the homeowners would save — which we’ll call on average $3,000 a year of interest — in effect comes out of the pockets of the holders of mortgage-backed securities. And these holders are predominantly the Federal Reserve, and giant financial institutions that taxpayers bailed out.

This is not the government bailing out people who’ve defaulted. This is honorable homeowners getting to refinance and paying their debts at 100 cents on the dollar. There’s nothing not to like, unless you own the mortgage-backed securities.

Hill: Now, we’re talking about huge losses, here, right? For the people who own these securities. Is there any chance this could actually happen?

Sloan: I hope it happens. I’m not wishing losses on Wall Street, but these mortgages have been trading at a big premium. The securities would not be trading at anything like their current value if taxpayers had not bailed out the financial system and a lot of the owners of the securities.

So they lose money, but that’s life. It’s in the contract; you’re supposed to know that when you buy a mortgage-backed security.

Hill: Fortune magazine’s Allan Sloan. Thanks so much.

Sloan: You’re welcome Adriene, it was my pleasure.

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