Earth to the Obama Administration: your new plan to have the government refinance home mortgages is already in effect.
And it’s not working very well.
Late last week, Obama’s folks leaked the news to The New York Times that one proposal to help the faltering housing market “would allow millions of homeowners with government-backed mortgages to refinance them at today’s low rates.”
The paper quoted “two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.”
Well, let me brief The Times (as well as those two people) about the realities of the situation.
Big banks have been refinancing these government-backed mortgages for several years now. Chase has already restructured $27.5 billion worth of mortgages, Citi $15.5 billion and Bank of America $17.9 billion.
And banks aren’t just refinancing people who can’t pay their mortgages. Lately, banks have been concentrating on the millions of homeowners who have been making their payments, aren’t under threat of losing their homes and haven’t even asked to refinance.
In all, more than $105 billion in mortgages have been refinanced by all banks through the second quarter of this year. These are new numbers that were just put out by the Federal Deposit Insurance Corp last week. That $105 billion represents 4.27 percent of all mortgages outstanding on one-family to four-family homes.
What program can the Obama Administration possibly put in place that will get those numbers up? That’s especially true since banks are already going full-out with their mortgage refinancing business now that it’s one of the few ways for them to make money.
Wells Fargo has recently been aggressively contacting its customers and coaxing them into refinancings. And Capital One is running TV commercials espousing the benefits of its zero-fee mortgage restructured mortgages, presumably trying to lure its own customers as well as those from other banks.
But so far the winner in the restructuring race is Chase, which refinanced an additional $2 billion in mortgages in just the past three months. It has now refinanced 11.58 percent of all the mortgages it owns or controls.
To put this in perspective, just $19.6 billion, or 0.17 percent of all mortgages, had been restructured as of the third quarter of 2008. So, $84.7 billion in mortgages were restructured in less than three years.
And the Obama Administration thinks it is coming up with something new! Even though most of the banks, if not all of late, are using a little-understood, mostly-hidden government program called HARP to accomplish these restructurings. HARP stands for the Home Affordable Refinance Program.
I started writing about this a couple of weeks ago when suddenly a lot of people I know were getting unsolicited offers from their banks to refinance. And in these weeks I have spent more time than I should have trying to figure out where the money for HARP is coming from.
This is still a search in progress, but here’s what I’ve learned so far:
n Banks seem to be pulling in a tidy sum on these rewritten mortgages although nobody is willing to say just how much.
n Because these are no-fee refinances, the usual costs are not being borne by homeowners. But where, exactly, are the banks getting the money they are earning in these refinancings?
n One bank that’s prominent in the home refinancing business says its fees are being paid by the government. Fannie Mae, to be exact. A spokesman for the US Treasury Department, which established bailout programs like HARP during the 2008 financial crisis, also says the fees are being paid by Fannie Mae.
Well, Fannie Mae and its cousin Freddie Mac got into financial trouble and had to be rescued by Washington — which, of course, means taxpayers. An outfit call the Federal Home Finance Administration (FHFA) was put in charge of monitoring Fannie Mae.
But when I contacted FHFA two weeks ago it had no idea that Fannie Mae was paying banks to refinance mortgages. No idea — in fact, the people there argued with me until I received a note from Treasury explaining the situation to the both of us. Maybe we should introduce FHFA to the White House. They could talk and soon each of them might have a clue.
I’m still trying to unravel the rest of this mystery. I still don’t understand, for instance, where a flat-broke organization like Fannie Mae is getting the money to pay the banks to refinance the mortgages.
Here’s the best guess of me and someone I contacted at the Federal Reserve, which is now looking into the matter.
Once banks like Chase rewrite mortgages at rates lower than the original borrowing cost the loans are packaged into a security and sold to investors. Nothing new there. But now the banks that are doing the refinancing seem to be getting a slice off the price investors are paying.
Do I care that banks have found a way to make money? Or that homeowners are getting a nice deal from the government? Or that Fannie Mae, in its delicate situation, is giving away revenue to banks that have already been bailed out?
Sure, I care about all those things.
But I mostly care that nobody in Washington seems to know what the guy down the street is doing.