Interesting Refinancing Proposal by Columbia University Economist

Since I took the week off, I am getting to catch up on my reading, and the latest book I have been reading is Bill Clinton's recent book, "Back to Work". One interesting proposal he brought up was a mortgage refinancing proposal by Glenn Hubbard and Chris Mayer of Columbia University. They propose that any current mortgage being held by Fannie Mae or Freddie Mac should be allowed to refinance at current market rates for only a modest refinancing fee. Clinton mentions in his book the closing costs would be a flat 0.4% of the loan amount and I did finally find that amount buried in the very lengthy description of Hubbard's proposal. Their Columbia University site has a whole ton of information and data available but it definitely took some wading through to get to the details.


Having learned about this, it was now time for me to, of course, compose a simple calculator to see how this would compare to a more conventional refinancing where consumers often must pay 1 to 2% of the loan amount in total closing costs. This is the main reason that we personally have not refinanced in the past year or so, since even with record low mortgage rates, our loan is so small and our rate is already low enough, that it is very difficult to justify refinancing to lower our rate just a bit more and reduce our payment just slightly as well. However, if the upfront costs were lower, many more people like myself would refinance, which would give us more spending money every month to help purchase more or invest more, both of which would help the economy. There are many such people as ourselves who have fairly stable jobs and good credit, but for whom refinancing again (since we did so in 2009) does not make that much sense.