The Obama administration is weighing whether to allow homeowners to refinance their mortgages so they can take advantage of the current rock-bottom rates, as the foreclosure epidemic spreads.
Sources in the housing and mortgage industry confirm that the refinancing proposal, which would cover government-backed mortgages, is one of several on the table as the administration tries to tackle the housing slump as well as the overall slack in the economy.
"As one would expect, we continue to look for ways to ease the burden on struggling homeowners and to help stabilize the market, whether that's through assessing new proposals or older ones worth re-considering as market conditions change," an administration official told Fox Business Network, while cautioning they have "no plans to announce any major new initiatives at this time."
The refinancing idea would help homeowners by saving them money on interest payments while potentially having a stimulus effect on the economy -- since the money they would have spent on mortgage interest would be available for other things.
Christopher Mayer, a professor of real estate finance and economics at Columbia University who pushed the idea, estimated it could save consumers $75 billion a year in interest.
"This would be the first good news we have seen in housing in years," Mayer told Fox News Radio. He said it would have an "enormous effect on both the consumer side of the market, as well as helping the housing market because people who have lower payments are much less likely to default on their mortgages."
He estimated that 54 percent of the benefits would go to homeowners with mortgages starting under $200,000.
"If you think of it from a policy perspective, it's the equivalent of a middle-class tax cut," Mayer said.
The development was first reported by The New York Times, which noted that the regulator in charge of Fannie Mae and Freddie Mac, as well as mortgage bond investors, might object to the plan.
Mayer said bond holders would bear most of the cost of the program, but argued that it would be a good deal for mortgage giants Fannie and Freddie -- since it could reduce the number of defaults.
Another possible assistance plan would involve renting out homes to avoid foreclosure.
Prior mortgage assistance programs have generally not produced the kind of results the Obama administration once envisioned. The refinancing idea also is not new -- any overhaul could involve an expansion of existing programs. However, with mortgage rates now hovering at about 4 percent, the potential windfall of savings for homeowners is that much greater. New figures out Thursday put the average rate for a 30-year fixed mortgage at 4.22 percent, and 3.44 percent for a 15-year fixed mortgage.
The refinancing idea drew some early criticism Thursday from Americans for Limited Government, which claimed the move would only encourage the pattern of reckless borrowing that triggered the housing bubble in the first place.
"The whole reason the crisis began was because cheap loans were provided to those with poor credit. Now, the Obama administration wants to return to this failed policy to prop up his sagging re-election prospects by directing the money to favored constituencies that took out loans which could not be repaid," ALG President Bill Wilson said in a statement. "This is nothing more than an $85 billion Obama-Re-elect slush fund."
Fox Business Network's Peter Barnes and Fox News Radio's Mike Majchrowitz contributed to this report.