How Could Mass Refinancing Impact Chicagoland Real Estate?

Chicago real estate underwaterSure, the interest rates are the lowest they’ve been in many decades. But when home loans are underwater – the homeowners owe more than the home is worth – taking advantage of low interest rates simply is not a possibility.
What if someone, say the federal government, stepped in and made it a possibility? How would Chicagoland real estate be impacted?
The idea seems far fetched, but prominent members of the mortgage industry are proposing that by stepping in to help creditworthy homeowners and homebuyers refinance or purchase at lower interest rates, the Federal government could boost the economy and increase its income tax take at the same time.
Real estate expert Ilyce Glink describes two of these proposals in her recent
Equifax Personal Finance Blog post, “
Mortgage Interest Rate Update: Are We at the Bottom?”  The first, offered by PIMCO’s founder and co-CIO, Bill Gross, suggests that homeowners with acceptable credit histories could get a 30-year mortgage financed by the government at 4 percent.
The second idea, proffered by San Francisco-based mortgage broker Dick Lepre, suggests that the government could offer an adjustable rate 30-year mortgage at 2 percent the first two years, 3 percent the next two years, and 5 percent for the remainder the term. It would be underwritten using strict standards and based on the 5 percent repayment amount to make sure home buyers could afford it for the duration. The Federal Reserve could purchase the debts and receive payments.
Based on her own experience refinancing, Glink estimates that some 10 million homeowners could save almost $3,000 each per year, injecting into the economy billions and billions of dollars that could be spent on goods and services. Plus, since most homebuyers deduct mortgage interest from their federal income taxes, and their interest would be less, tax payments would increase.
Glink shares more details and links to the original ideas as presented by Gross and Lepre on the
Equifax Personal Finance Blog. What are your thoughts on the proposals? How do you think Chicagoland real estate would be affected if more homeowners and homebuyers could take advantage of low interest rates? Check out Glink’s article, then report back here to share your thoughts.