Letter of Opposition: New Menendez-Boxer Refinancing Plan, S. 3085
On behalf of more than two million Americans for Prosperity activists in all 50 states, I write in strong opposition to the recently-introduced Responsible Homeowner Refinancing Act, S.3085. The bill promises help for homeowners, but will instead deliver harmful consequences for the nation’s housing markets that leave homeowners worse off in the long run.
Introduced by Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA), S.3085 makes further tweaks to the Home Affordable Refinance Program (HARP) on top of the changes already implemented in March. The idea is to streamline the refinancing process and eliminate fees and legal barriers to make it easier for homeowner’s to refinance at today’s low mortgage rates. The bill’s supporters claim that it will help up to 3 million homeowners save an average of nearly $3000 per year on their mortgage, all at no cost to U.S. taxpayers.
If something sounds too good to be true, it usually is, and that’s certainly the case here. Homeowners will be helped by the program, but it comes at the expense of those on the other side of the mortgage agreement: the investors that funded the loan in the first place. They will face losses when they receive lower interest payments than they expected over time. Any “stimulus” provided by homeowners with more cash in their pockets will be offset by investors (including pensioners) spending less because they have less cash in theirs. Moreover, as I wrote in a recent piece in the Daily Caller, when the government steps in to rewrite mortgage contracts this adds an additional layer of risk—political risk—to investing that will only cause mortgage rates to go up in the future, hurting everyone else looking to buy a home or refinance.
Refinancing does create costs for U.S. taxpayers as well. The Federal Reserve and the government-backed mortgage giants Fannie Mae and Freddie Mac are themselves investors in trillions of dollars worth of mortgage securities, and they too would see the value of their investments fall—at taxpayer expense.
Proponents argue that this cost would be off-set by fewer homeowners defaulting on their loans, leaving taxpayers with fewer losses from soured mortgages. But only homeowners who are already on-time with their payments (“responsible homeowners”) are eligible for this new streamlined refinance process, implying that they’re not much “at risk” for defaulting anyways. A report from the non-partisan Congressional Budget Office, modeling a similar refinancing program, showed it would have a $600 million net cost to taxpayers.
In the end, what we’re really seeing here is the federal government trying to dig itself out of a hole. Government housing policies helped inflate a bubble that burst with disastrous consequences in 2008, and the housing market is still seeing the effects today. Nationwide home prices are 34% below their 2006 peak. Large numbers of homeowners are underwater as a result. So now the government is trying to save the day again. But as Mercatus scholar Anthony Sanders explains, we don’t fully understand the consequences of this new round of government support—indeed it could “simply unleash more taxpayer-eating dinosaurs on the economy.”
A better solution to our housing woes would be for Congress to quickly resolve and wind down Fannie and Freddie, allowing private capital back into the market and restoring confidence. This would also ease the burden on American taxpayers: the two mortgage giants have gobbled up $187 billion in bailouts so far and have a near-certain need for more in the future.
Americans for Prosperity strongly opposes S. 3085, the Responsible Homeowner Refinancing Act. It’s time for the federal government to end its continued meddling in the housing markets.
Adam A. Berkland
Federal Affairs Manager
Americans for Prosperity