President Obama has proposed some new rules that would allow homeowners to refinance in many cases where that has not been possible up until now. The main hurdle has been the appraisal--often, homeowners who have the ability to pay have not been able to take advantage of lower rates, because their homes are "underwater" (worth less than the mortgage, or worth less than the amount that they could refinance for). His proposal would allow homeowners who are current on their mortgages, and have been for the last six months, to refinance without an appraisal (it does say "in most cases", and I'm not sure what that means). His stated goal is to lower people's monthly payments and free up the extra cash to circulate into the economy and improve sales of other goods and services.
I see two problems with this. One is that such homeowners would be allowed to convert their loans, at their option, into 15-year mortgages. Since such a move would raise, rather than lower, their payments, I fail to see where the extra cash goes into anything except a different loan. Secondly, the idea that banks are being told to refinance without qualifying appraisals seems ironic. Isn't that supposedly how we got into this recession in the first place? So, we tell them to make loans that don't meet the criteria that we just tightened? And, if those loans go bad, and we can't blame the banks and their greed, whom do we blame?
It's clearly frustrating for good credit risks to lose out on lower rates because they are paying their mortgages regularly, and I understand that. Somehow, though, the whole program has the ring of having started with some White House staffer complaining about not being able to refi his/her house, and then letting policy people hash out a compromise so that the banks would be happy with the result. It seems to me that we have done that too often already.