Pimco’s Bill Gross said the U.S. government should offer to refinance mortgages for homeowners as a way to stimulate the struggling economy.
“Policymakers should quickly engineer a refinancing opportunity for all mortgagees who are current on payments, and [whose mortgages] are included in [government-sponsored enterprise] securitized mortgages," Mr. Gross said Tuesday at a conference hosted by the Treasury Department in Washington.
“This home [re]financing, to my way of thinking … where you take 5%, 6%, 7% mortgages and turn them into 4% mortgages, basically will provide a push — a stimulus of $50 to $60 billion in consumption — as well as a potential lift of 5% to 10% in terms of housing prices," Mr. Gross said.
Mr. Gross, who is managing director and co-chief investment officer at Pacific Investment Management Co. LLC, also called for the “full nationalization” of mortgage-finance system, and argued that the larger role for the private sector being pushed by policymakers was unrealistic. The U.S. government, with its ownership of
Fannie Mae and Freddie Mac, already owns 95% of mortgages, he said.
He explained that the U.S. economy “is approaching a cul de sac of stimulus, which will slow it to a snail's pace, incapable of sufficient job growth going forward” and that “unemployment rates will approach and remain at double-digit levels, unless a positive fiscal stimulus is provided within the next six months.”
Mr. Gross later told the Huffington Post that the refinancing scheme would be the one thing the government can do to stimulate the economy “that doesn't increase the deficit and that doesn't require legislation.”
At the conference, Mr. Gross said that lowering interest rates on current mortgages would likely hurt Pimco's own holdings of mortgage-backed securities.
Mr. Gross said he was against the private sector playing a bigger part in housing finance.
“Pimco advocates 100% public finance [for the mortgage market] with government guarantees that are protected by adequate down payments, obviously, and sufficient insurance premiums to never again permit American taxpayers to subsidize a $300 billion or $400 billion black hole,” he said.
Fannie and Freddie should be consolidated “into one true GNMA, a government national mortgage association,” Mr. Gross said. "We are skeptical of other public/private models currently being considered because they're more expensive — primarily resulting in higher mortgage rates — and therefore favoring Wall Street as opposed to Main Street."
