According to an analysis conducted by Macroeconomic Advisers, most of that $84 billion represents transfer of income from lenders to borrowers. The only net stimulus from this transfer would come from extra disposable income in the hands of borrowers whose mortgages are owned by the government, the Federal Reserve or foreigners. For all other mortgages, the borrowers' additional spending would largely be offset by reduced spending on the part of lenders.
In addition, the analysis argues, the $84 billion figure assumes that everyone who could benefit from a mortgage refinancing obtains one. That's highly unlikely. "Recent empirical work suggests the take-up rate on such a program could be small, on the order of 10%, or roughly 3 million mortgages," says the advisers' report. The Obama administration says that 37 million mortgage holders could save money under an expanded Home Affordable Refinance Program (HARP).
The combined effect of the wealth transfer and the low buy-in is to dramatically reduce the amount of economic stimulus an expanded HARP would produce, say the advisers: "All told, we estimate that, at most, such a plan might boost GDP growth by 0.1 to 0.2 percentage point."
The advisers' report does say that an expanded HARP might help the housing market recover sooner by stabilizing house prices. The wealth effect produced by price stabilization could both stimulate consumption and spark an earlier revival of housing construction by reducing expectations of further price declines.
However, the advisers also note that an expansion of HARP such as President Obama recommended in a Sept. 8 speech would also face political obstacles. Either the Federal Housing Finance Agency, which oversees the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac, or Congress would have to approve any expansion of HARP beyond its current scope. The current head of the FHFA, Edward DeMarco, was not appointed by President Obama and might object to the program on the grounds that it would lower taxpayers' return on assets owned by Fannie and Freddie. Even if it was shown that those losses would be offset by a drop in defaults, the FHFA might still block implementation to demonstrate political independence. Moreover, the current Congress is even less likely to approve a program proposed by the President that would cost taxpayers money.