The primary source of the pressure for banks and the GSE to refinance mortgages is so that those with rates around 7 percent and 8 percent can reduce their payments with the historic rates of around 4 percent that the Federal Reserve has helped artificially engineer.
- Some banks don't want to refinance mortgages because the loans are underwater.
- Other banks are just backed up on the paperwork.
- Still others are just bad at the job they are supposed to perform.
Whatever the case, there at least two things worth considering: even a 7 percent mortgage is a good thing in relative terms, and even without a massive, national refinance program, mortgage rates on outstanding debt have been falling.
Consider the below chart developed from recently released BEA data:
The average effective rate of interest on mortgage debt never fell below 8 percent from 1977 to 1996 (that is the farthest back the data goes). After the housing finance policy changes of the 1990s began to take effect in 1995 and 1996, we see the effective mortgage rate drop below that threshold. For the first quarter of 2012 the effective rate on all outstanding mortgage debt was 5.115 percent, and it has fallen every quarter for the last 24 quarters, or since the 2Q2006.
There does not seem to be an immediate need for a massive refi program to push past the legal boundaries of mortgage law. Banks should become better at customer service, process decision faster, but still be allowed to make prudent calls on what would be the most profitable for their shareholders—many of whom are taxpaying Americans.