In the wake of looming foreclosures and loan defaults, the Obama Administration is once again considering extending federal aid to help struggling homeowners get quicker access to affordable mortgage refinance loan solutions. President Obama proposed to expand access to home refinancing has reignited a debate about the appropriate role for government in supporting the real estate sector. Some economists argue that the best way to spur the recovery is to stop intervening, let matters run their course, and allow home prices to normalize naturally. Mortgage refinancing guidelines have tightened dramatically over the last few years, so many struggling homeowners want to refinance but are unable to qualify.
The new initiative, briefly mentioned by the president in his jobs speech last week, seeks to help homeowners to refinance their mortgages at lower interest rates with hopes to stimulate consumer spending and boost economic growth. Anthony Sanders, professor of real estate finance at George Mason University, says it’s a mere extension of The Home Affordable Refinance Program, which has helped only a small number of homeowners. In his view, the initiative is unlikely to have any significant stimulative effect on the economy.
Some argue that government efforts to help struggling homeowners would alleviate labor mobility, which has been hampered by the housing woes. But Stijn van Nieuwerburgh, associate professor of finance at NYU Stern Business School, says labor mobility has not been a big issue. “All areas in the U.S. are affected, and it is not the case that there are abundant jobs anywhere.” A recent research from Chicago Federal Reserve also found no evidence that people’s reluctance to sell their homes in declining market to relocate for a new job has contributed to high unemployment. Read the complete CNBC article.
