Krugman: Hope For HARP - "Gagnon thinks that this could be huge"

[Pirate Smile]

Krugman:

Hope For HARP

Most quick reactions to the new Obama housing proposal have been fairly dismissive, arguing that it would provide only a small boost. I don’t have an opinion yet, because I haven’t had time to work through the details — and on this kind of thing, the devil is very much in the details. (Does that make it another 666 plan?)

But lest it be lost in the shuffle, let me send interested readers, and especially macroeconomists, to Joe Gagnon, someone I take very seriously. And Gagnon thinks that this could be huge, especially if combined with a Fed program of buying mortgage-backed securities. He’s talking maybe 4 million jobs!

This is not an endorsement of his analysis, just saying that this really needs looking at.

http://krugman.blogs.nytimes.com/2011/10/24/hope-for-harp/?smid=tw-NytimesKrugman&seid=auto

The Last Bullet
by Joseph E. Gagnon | October 24th, 2011 | 02:59 pm

US policymakers are running out of options to solve our massive unemployment problem and get the economy growing again. The Administration’s jobs bill faces resistance in Congress. The best option that can be implemented without a vote of Congress is to work through the market that started this mess in the first place—housing. The Administration has made a good start by announcing that it plans to make it easier for underwater mortgagors to refinance and repair their balance sheets, but some of the details to be filled in will be important in determining the ultimate effectiveness of the program. In addition, to boost the overall economy and to maximize the benefits of mortgage refinance, the Federal Reserve should announce new large-scale purchases of agency guaranteed mortgage backed securities (MBS) with the goal of keeping the 30-year mortgage rate between 3 and 3.5 percent through the end of 2012. These purchases would have beneficial spillovers into almost all other financial markets.

-snip-
The Administration plans to improve HARP in several dimensions, most notably by removing the 125 percent loan-to-value ceiling, by eliminating the need for a new appraisal in many cases, by lowering fees for borrowers, and by waiving some representations and warranties that lenders are required to make to the housing agencies.

-snip-
Macroeconomic Effects

The annual savings to borrowers would be about 0.5 percent of GDP. Because of the long-lasting nature of these savings, the total effect on household spending would be greater than that of an equivalent but temporary tax cut.4 In addition, the availability of record-low mortgage rates for a fixed period of time likely would spur potential new home buyers into the market and boost home building and sales.

Even more important, if the Federal Reserve supported the refinancing boom by purchasing $2 trillion of new MBS, for example, the existing MBS holders would have to find another market in which to invest $2 trillion. This avalanche of money would surely push up stock prices, push down bond yields, support real estate prices, and push up the value of foreign currencies. All of these financial developments would stimulate US economic activity. Based on a recent Fed study (Chung et al 2011) Fed purchases of this magnitude would increase US GDP by more than 2 percent after about two years, creating nearly 3 million additional jobs. This estimate includes only a small part of the effects operating through the mortgage refinance channel discussed above, so that the total effects on the economy would be even larger, perhaps creating 4 million extra jobs or more.

http://www.piie.com/realtime/?p=2456

edit to add - speak of the Fed helping:

New Obama refi plan could get help from Fed

Another Federal Reserve policymaker signaled Monday that the central bank may launch a new round of mortgage-bond purchases to boost the housing market.

The comments by New York Fed President Bill Dudley came on the same day that the Obama administration announced a major overhaul of its mortgage-refinancing program for loans owned or backed by Fannie Mae and Freddie Mac.
A new Fed program “would complement the goals of the administration in helping the housing market,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, N.J.

Dudley, speaking in New York on the economy, said that the continued weakness in housing was “a serious impediment to a stronger economic recovery. . . . Mortgage rates are at record lows and house prices no longer appear overvalued on affordability measures. But obstacles to refinancing and access to credit for home purchases are limiting the support provided by low rates to house prices and consumption.”

-snip-
The Fed bought $1.25 trillion of mortgage-backed bonds in 2009 and 2010, but it has allowed that portfolio to decline to $860 billion as securities have matured.
Yellen and Dudley are allies of Fed Chairman Ben S. Bernanke. But they face opposition from some Fed officials who believe the central bank already has done enough to boost the economy.

http://latimesblogs.latimes.com/money_co/2011/10/fed-housing-mortgage-bonds-buying-qe-econom-dudley-yellen.html

[TheWraith]

1. Kicked and recommended.

Funny how fast Krugman gets thrown under the anti-Obama bus when he says anything even remotely positive.

[MannyGoldstein]

2. Who threw who under the bus?

Krugman, probably the economist with the best history of correct predictions, was launched under the bus by the White House in favor of chronically-discredited Wall Street insiders like Summers and Geithner. Who failed again.

I'm sure that the vast majority of Democrats who are highly critical of Obama, like Krugman and me, hope to hell that this plan works, that the economy recovers, and that Obama becomes a hero. We want what works for our country, nothing less.

For the record, I recced this post.

[dennis4868]

4. No, Obama was dealing with a right wing...

congress and DINOs that hate Krugman....remember, Obama is not a king...can't make laws unless he works with a congress...I checked the U.S. Constitution and it sayd that.....really!

[zipplewrath]

13. Um, apparently THIS doesn't

I hope this has some positive effect. Krugman is more positive than I, and he admits that he hasn't really looked at the details and he isn't yet endorsing it. But if it actually DOES work, one would be moved to ask why they heck he waited 2.5 years + to get around to it. This is especially true considering that by now, many folks have decided to default on these mortgages and won't qualify for the help. I know 3 people who quit waiting for this kind of program and have moved on to default.

I hope his works better than past efforts. But it is proof positive that Obama hasn't had to "wait" for congress to act and in fact that he has CHOSEN to wait on congress.

[TheWraith]

6. Krugman complaining about Obama gets 100+ recs.

Krugman saying something good about Obama gets next to no recs.

And your insistence that Krugman was "launched under the bus"--when he himself has said he's completely unsuited for government--is kind of silly even before you repeat the claim that Summers and Geithner are "Wall Street insiders." A status which is apparently granted even through Geithner has never worked for a Wall Street investment bank, and Summers is a career academic who worked for a financial firm a grand total of two years, part time.

[dennis4868]

3. yeah...

sometimes he goes off the DU narrative of Obama and DUers have a hard time dealing with that :-(

[Pirate Smile]

5. Kick because I added another article.

[MannyGoldstein]

7. Summers made many millions on Wall Street. Geithner showered

taxpayer cash gifts at the bankers, e.g., when he astonishingly paid Goldman Sachs and other AIG counterparties 100 cents on the dollar when AIG imploded.

As to Krugman, he's been utterly ignored by the WH and dissed by their operatives. The WH said that "nobody knew" unemployment would get so bad - But Krugman had predicted it based on the way-underpowered Summers-Geithner-Obama stimulus.

[girl gone mad]

8. It looks as though Krugman did not actually read official FHFA press release.

Felix Salmon has done a good job summarizing:

Obama’s pathetic refinancing initiative

http://blogs.reuters.com/felix-salmon/2011/10/24/obamas-pathetic-refinancing-initiative

Sounds impressive, eh? It is, until you read the official FHFA press release. At which point you learn that

If you’re a homeowner whose mortgage isn’t owned or guaranteed by Frannie, you’re out of luck.
If your mortgage was sold to Frannie after May 31, 2009, you’re out of luck.
If you want to get out of negative-equity hell by doing a principal reduction, you’re out of luck.
If your bank doesn’t feel like participating, for whatever reason, you’re out of luck.

All of which is likely to result in not-very-much, as the FHFA itself concedes:

For many reasons it is very difficult to project the number of mortgages that may be refinanced under the enhancements to HARP, including the future path of interest rates, borrower willingness to undertake a refinance transaction and the number of lenders and servicers who choose to offer the program. Given current market interest rates, our best estimate is that by the end of 2013 HARP refinances may roughly double or more from their current amount but such forward-looking projections are inherently uncertain.

First, by the end of 2013? Never mind mortgage relief now, we’ll try and get you mortgage relief in two years’ time?

Secondly, the current pace of HARP refinancings is pathetic. This chart comes from the FHFA press release, and it shows that over the most recent four months for which we have data, we’ve been managing to do less than 30,000 HARP refinancings a month. And in the 28-month history of HARP, we’ve managed a grand total of 894,000 HARP refinancings, which works out to about 32,000 per month. Interestingly, the chart ends at August 2011, which means it represents exactly half of the total timeframe from the beginning of HARP to the end of 2013. In other words, the FHFA is projecting that the pace of HARP refinancings won’t increase at all as a result of this plan. We’ll still average out at about 30,000 per month — maybe a bit more, maybe a bit less, but you’re never going to make a dent in the mountain of 11 million underwater mortgages at that rate.

[MannyGoldstein]

9. Ouch.

Not what I'd hoped for.

[ClarkUSA]

10. I'll bet he did. For those who do qualify, this will be a godsend.

I don't qualify because my bank won't/doesn't participate but I sure as hell won't begrudge good fortune from Pres. Obama's ongoing efforts to those who do.

[banned from Kos]

11. Remember - to many Obama will be a complete failure until he personally

tackles Jamie Dimon on Wall St, handcuffs him, bypasses a court trial, and imprisons him in GITMO for life.

1.5 million underwater mortgage re-fis are not the point!

[ClarkUSA]

12. lol! You're right.

<< 1.5 million underwater mortgage re-fis are not the point! >>

Thanks for reminding me. Glad you're here to do it. Kos' loss is DU Obama Supporters' gain. :hi: