Refinancing Malarkey

It looks like the Obama Administration is about to endorse some version of the Hubbard-Mayer plan of letting everyone (or at least everyone with an agency mortgage) refinance at today's low rates, regardless of whether they are delinquent or underwater.  (Gotta love how the administration picks up a 3-year old Republican plan with obvious deficiencies and acts like it's fresh meat.) I fail to see how such a plan will accomplish much.  

The ability to refinance depends heavily on whether a homeowner is current and has equity. Consider, then, the impact on the 4 categories of homeowners under this rubric:   

(1) Borrowers who are current and have equity.  Refinancing is always possibly for anyone who is current and has sufficient equity in their home. That's a lot of existing borrowers for whom a new refi program does nothing. 

(2) Borrowers who are current but lack equity.  There is also a large pool of borrowers who are current, but have insufficient equity or negative equity for a refinancing. A new refi program probably doesn't do much for them either. It doesn't take very much equity to do a FHA refinancing, but putting that aside, the Home Affordable Refinancing Program (HARP) allows for negative equity refinancings. There haven't been a lot of them, however, and I think that bodes poorly for any new program. The closing costs for refinancings can be a major obstacle for households without a lot of extra cash sitting around and with uncertainty as to whether they'll stay in an underwater house long enough for the lower rates to make the refinancing worthwhile.  

(3) Borrowers who are delinquent, but have equity.  These borrowers can already get out of the house via a sale.  In any case, most of these borrowers are seriously delinquent, not just 1 or 2 months delinquent.  Lower monthly mortgage payments aren't going to do a thing to change their delinquency or the pending foreclosure. 

(4) Borrowers who are delinquent and lack equity.  As with delinquent borrowers who have equity, most of these borrowers are seriously delinquent, not just 1 or 2 months delinquent.  Lower monthly mortgage payments aren't going to do a thing to change their delinquency or the pending foreclosure. 

So in the end, it's really not clear who this would help.  It ignores that there's already been lots of refinancing at low rates since 2008--it's not clear how much more refinancing some new initiative will possibly produce, much less how many foreclosures it will prevent.  The refi idea seems to do nothing on either negative equity or unemployment. Any program that fails to address those just isn't serious.  I get that the administration has a MacGyver problem given that it can't move anything in Congress, but that necessitates much more creativity, financially and legally, not rewarming old ideas.  My prediction:  this ends up accomplishing about as much as FHAShortRefi or Hope4Homeowners.  

We need a TARP for Main Street.  This isn't it.