Key Message
The authors argue that while the CARES Act and Federal Reserve interventions have stabilized mortgage markets, the potential of mortgage refinancing as a stimulus channel is not fully realized. The barriers include a higher-than-expected spread between mortgage and Treasury rates and tightened underwriting standards. The report proposes a new Home Affordable Refinance Program (HARP 3.0) to streamline the refinancing process without requiring income verification. This would lower mortgage payments, reduce default risks, and stimulate consumer spending.
Implementing HARP 3.0 could lead to substantial economic benefits, including reducing mortgage rates by an average of 173 basis points, saving consumers approximately $76 billion annually, and increasing consumption by about $53 billion per year. The program would also disproportionately benefit homeowners of color, who face greater challenges in accessing refinancing. The authors emphasize that such a policy could provide immediate economic relief and long-term stability, making it a crucial tool in the broader economic recovery strategy.