To stimulate the economy and reduce defaults and foreclosures, a Morgan Stanley economist is suggesting that the government should allow lenders to refinance Fannie Mae and Freddie Mac mortgages regardless of loan-to-value ratios or incomes.
He also believes that such high LTV refis should not be eligible for 'putbacks' to the seller/servicers originating them.
Economist David Greenlaw in a new research paper "Slam Dunk Stimulus," says the government should recognize its credit exposure on Fannie and Freddie loans (the two GSEs are in conservatorship) and speed up the refinancing process.
He noted that the Federal Reserve has pushed mortgage rates to historic lows — yet, "prepay speeds are half where they should be because the refi channel is being blocked." He blamed the clog on tight credit policies and lenders fearing repurchases.
He noted that the HAMP refinancing program has not gained much traction because of the putback phenomena.
In an interview with National Mortgage News he said there should be no putback authority on refinancings of Fannie and Freddie loans. "Quite simply, there is no need for a case-by-case credit analysis when the principal value of the mortgage is already backed by the government," according to his "Slam Dunk Stimulus" paper.
