But other experts have speculated that the Fed's decision to roll over the proceeds from maturing investments into mortgage-backed securities (MBS) could indirectly give the housing market a boost as well, completely apart from the low-interest rate policy the central bank is pursuing. For any expanded refinancing program to work, lenders need to be willing to refinance loans and someone must be willing to invest in the MBSs produced. With rates so low, one of the biggest stumbling blocks has been getting investors interested in investing in MBSs. But, with the Fed's recent announcement that it will reenter the MBS space, the market could now have a willing investor.
"The idea is speculative but certainly reasonable," wrote Tim Manni, managing editor of HSH.com, in a recent article. "Since Fannie and Freddie are already under the government's control, it stands to reason that a large pool of underwater mortgages could be refinanced via HARP, packaged into mortgage-backed securities and sold to the Federal Reserve again, who declared their renewed interest in purchasing mortgage investments."
A coordinated effort by the government could also "put more than $2,000 a year in a family's pocketbook, and give a lift to an economy still burdened by the drop in housing prices," Obama said in his American Jobs Act speech. Economists say a large-scale refinancing effort could free up more than $70 billion for consumers to, hopefully, spend elsewhere.
While the extent of Congress' and the Obama administration's involvement in the housing market remains to be seen, it's clear that policy makers need to come up with some measure to repair the gash the housing market has left on the economy. Otherwise the slow bleed of dropping home prices coupled with a host of other domestic and international economic worries could keep the economy on the brink of another, possibly deeper, recession.
"There are important considerations about the administration's stated goal of getting private mortgage money back into the market, and that's really a crucial key element for the long-term health of the market," Gumbinger says. "But the question is how much more do we need the shorter-term benefit? There is a balance to be achieved there."