Open Thread: Reinflating the Real Estate Bubble

August 31st, 2011 10:50 AM

It seems proponents of demand-side economics have learned nothing from the recent bursting of the real estate bubble as it is now rumored that the Obama White House is looking to push a massive refinancing scheme powered by the unregulated and unreformed Fannie and Freddie in yet another effort to use government cash to increase private spending:

The refinancing initiative would allow certain borrowers to refinance loans that are backed by government-owned Fannie Mae and Freddie Mac or the Federal Housing Administration, the sources said.

A broad-based effort to automatically refinance millions of mortgages is not in the works, yet the administration is looking to take targeted changes to an existing program that would allow more borrowers to take advantage of low mortgage rates, including allowing borrowers to refinance even if they owe a significant amount above their property's current value.

The idea is to help struggling borrowers refinance at current low interest rates, which would cut their monthly payments and free up cash for other spending. The hope is that this could drum up overall business activity.

If people were to participate in the refinancing, it would seem that this would have more of a lasting impact than the utterly wasteful first-time homebuyer credit of 2009. Still, where is the money going to come from and how soon would a refinancing change cause liberals to whine about too-strict lending standards like they have already started doing? Tell us your thoughts in the comments.