Budget office discourages mortgage refinancing plan

The Congressional Budget office has thrown cold water on a U.S. initiative to refinance loans held by millions of homeowners, and stated its support for Edward DeMarco, the Federal Housing Finance Agency acting chief, who has drawn criticism for his skepticism of the plan, the Financial Times reported.

The initiative would effectively leave private investors with double in losses what borrowers would get in payment relief, researchers at the CBO found in a recent study.

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“The study recognizes the enormous losses private investors would suffer in a transfer of wealth to borrowers,” said Joshua Rosner, a housing finance expert and managing director at independent research firm Graham Fisher & Co. “While such a transfer would be acceptable to some in Washington … it would result in the unwillingness of investors to buy mortgage-backed securities without charging an exorbitant risk premium to compensate for the event the government does this regularly.”

The White House been considering launching a mass-refinancing scheme after previous housing efforts fell flat, the Times said. President Barack Obama is expected to address the topic this evening in a speech to Congress. [Financial Times]

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