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Cut Mortgage Rates on Fannie, Freddie Loans: Gross

Tuesday, 17 Aug 2010 | 4:08 PM ET
Bill Gross
CNBC.com
Bill Gross

Bill Gross, a managing director at bond giant PIMCO, told CNBC Tuesday that if Fannie Mae and Freddie Mac lowered interest rates for mortgage holders in good standing, it would stimulate the economy, encourage consumer spending, promote job growth and give the beleaguered housing market a much-needed lift.

The federal government, through Fannie and Freddie , guarantees about 95 percent of the mortgages in the US.

Pimco's Gross: Make Fannie & Freddie Bigger
Fannie Mae and Freddie Mac should lower the interest rate on all mortgages in good standing, according to Pimco founder Bill Gross.

"That [action] would obviously benefit the homeowner to the extent of one-third of its future payments,” he said.

“In terms of real dollars, it’s a $50 billion to $60 billion push or stimulus going forward. In my estimation it would lift housing prices by 2 to 5 percent, which is an important policy objective of the administration.”

Specifically, Gross is proposing that homeowners with 30-year mortgages who are current on their loan payments be allowed to refinance their mortgages and reduce their interest payments from roughly 6 percent to 4 percent.

Gross spoke to CNBC from Washington, where he was attending a federal housing summit organized to tackle housing market.

The Housing Fix -- A CNBC Special Report >> See Complete Coverage
The Housing Fix -- A CNBC Special Report >> See Complete Coverage

He said the economy needs a boost, and that although the gesture he is recommending would be small, it would give the economy a shot in the arm. Growth is now at about 1 percent, he added, and real unemployment rests at between 16 percent and 18 percent.

Gross added that such an action would not add to the deficit, nor require legislative approval, which is helpful because of the political gridlock between Democrats and Republicans in Congress. He added that the upcoming elections figure into the bottleneck.

The government already has spent billions on aiding homeowners, including $3 billion in aid to unemployed homeownersannounced last week. Meanwhile, US mortgage rates continue to hit record lows, helped by plunging Treasury bond yields and the Fed's pledge to continue buying up government debt.

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