Another free lunch

4 August 2010 By James Pethokoukis

One Wall Street idea to boost growth is for the government to loosen rules so millions more Americans can refinance mortgages, thereby freeing up cash for spending. A desperate Washington might be tempted but it’s too reminiscent of how the economy first fell into trouble.

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President Barack Obama's administration has set aside $50 billion of the $700 billion bank rescue plan for its Home Affordable Modification Program. Under the HAMP program, less than $200 million has been spent so far on loan modifications.

The Home Affordable Refinance Program, a sister program to HAMP, will stay in effect through June 30, 2011. It is aimed at allowing refinance for mortgages between 80 percent and 125 percent of the home's value. About 190,180 mortgages have been refinanced since HARP was launched in April of last year. Of these, just 1,923 were between 105 and 125 percent of the home's value.

Morgan Stanley on July 29 proposed a plan to inject stimulus into the household sector of the U.S. by relaxing mortgage refinancing rules.

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