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PIMCO's Gross calls for massive mortgage
refinance
CNBC
2010.08.17
WASHINGTON - Influential bond investor Bill
Gross dispensed more policy advice than the U.S. Treasury bargained for
on Tuesday, calling for a massive program to refinance mortgages at low
rates to boost the flagging economy.
Gross, speaking at
a Treasury forum on the future of housing finance giants Fannie Mae and
Freddie Mac, said a massive refinancing program to slash monthly
mortgage payments could boost consumer spending by $50 billion to $60
billion and boost home prices by 5 to 10 percent.
"Policymakers
should quickly re-engineer a refinancing opportunity for all mortgagees
that are current on payments and are included in GSE-securitized
mortgages," said Gross, PIMCO's co-founder and co-chief investment
officer.
"The American
economy is approaching a cul-de-sac of stimulus, both monetarily and
fiscally, which will slow it to a snail's pace incapable of providing
sufficient job growth going forward."
Such a program was
needed in the next six months, he added.
Gross' suggestion
is at odds with the Obama administration's housing rescue strategy,
which has been focused on modifying failing mortgages to lower payments
for struggling homeowners. A wholesale Fannie/Freddie refinancing
program for those making their payments would be a major shift in
policy.
After the
conference, Gross told reporters he didn't think the administration
would take up his proposal and added that he "actually shouldn't have
brought it up" because the day's focus was on options for a new housing
finance system.
Gross, who oversees
more than $1 trillion in assets, also called for a full nationalization
of Fannie Mae and Freddie Mac, consolidating them into a single
government agency to provide full guarantees for mortgages.
He said it was
unrealistic to assume that the private market could step in and replace
GSEs as providers of home mortgage liquidity. "It won't work," he said.
"Without a
government guarantee, mortgage rates would be hundreds -- hundreds -- of
basis points higher, resulting in a moribund housing market for years,"
Gross said.
He said PIMCO would
not consider investing in a private, or privately insured, mortgage pool
unless it was accompanied by 30 percent down payments -- far above the
current norm.
http://www.cnbc.com/id/38743920
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