Last week on the blog we noted that the President sounded like he was proposing a secret stimulus in his State of the Union by talking about helping out the housing market and suggesting a new refinance program (or “new” new refi program since HARP 2.0 was just a few months ago). It looks like our fears were mostly justified.
As expected, the new refinance program proposal is only going to apply to homeowners current on their mortgage. That means you’ve made your last six payments and only missed one payment in the six before that. While there are certainly families that are on the edge of defaulting that a refinance could help, most of the refis will go to households that can make their mortgage payments.
Thus, this does not help struggling homeowners.
Instead, the program puts money in the pockets of Americans eligible to qualify that they can use for whatever they want. Maybe it gets put towards housing, or maybe a shopping spree at JC Penny, maybe in Game Stop, maybe for the college trust fund. However the money is used though, it amounts to a stimulus.
From there we can debate whether or not the stimulus program proposal is a good idea—some Keynesians might says yes because it could boost demand at JC Penny and Game Stop; Austrians would say no since it is just transfer payments at the end of the day given that the money has to come from somewhere else in the economy—but it can not be denied that it would be stimulus.
The one caveat (there always is one): If homeowners decide to refinance into 20-year mortgages instead of 30-year mortgages, and apply the savings from the lowered payments to be able to do this, the President’s proposal includes covering closing costs. In this case, the program would be purely designed to funnel money into housing, not quite the thing as a blanket stimulus, but perhaps more of a specified spending program… designed to stimulate the housing market.
Once again it has to be said that this plan requires Congressional approval, which is unlikely. As a result we’ll refrain form breaking the program down section by section to show how, even if you set the stimulus idea aside, it has a lot of problems (see a quick run down of HARP 3.0 details here). If Congressional Republicans do show some interest in the program idea though, we will provide a full analysis on the landmines scattered through out the White House proposal.