The loudest objections are being registered by holders of mortgage bonds, who would take a hit if loans are paid off early.
Some fund managers have loaded up on agency mortgage-backed securities, those bonds backed by mortgages guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association, because they offer higher yields than U.S. Treasuries.
Last week, the $5.4 trillion agency MBS market recorded one of its worst weeks in a year as traders dumped mortgage bonds out of concern the White House would put forward a plan that would shoulder them with losses.
While mortgage rates have been hovering around record low levels, banks remain stingy with lending although they are sitting on more than $1 trillion in excess reserves. Homeowners without a job or good credit histories have been essentially shut out of the refinancing process.
Some investors say the economic benefit of a government-encouraged refinancing wave would be minimal.
“It’s a political hail Mary. It’s unclear why they want to throw a monkey wrench into a $5 trillion market,” said John Kerschner, head of securitized products at Janus Capital Group in Denver. He said the net benefits for the economy are negligible, perhaps adding $20 billion to $30 billion “at best” to the U.S. economy.
Join us on our
Share this page with your friends
on your favorite social network: