Opening up mortgage refinancing could spur economic recovery

One of the Obama administration’s proposals for improving the housing market is allowing homeowners with federally-backed mortgages to refinance at the current, historically low rate. Christopher Mayer, a real estate finance and economics professor at Columbia University, told NPR the plan would work because it would offer middle-class homeowners the same advantage — the ability to get out from under debt and borrow less — that has helped many businesses become profitable. Though he acknowledges the damage it would do to bondholders, he explained that ultimately the entire country would be better off with what’s effectively a $70 billion tax cut for middle-income households. Finally, Mayer said another obstacle for the housing market is the difficulty new homeowners have in attaining low mortgage rates. Unless buyers have credit scores of 700 and put down 40 percent or more up front, they are very likely to pay three-quarters of a percentage point more. [NPR]