Influential bond investor Bill Gross dispensed more policy advice than the U.S. Treasury bargained for on Tuesday, calling for a massive program to refinance mortgages at low rates to boost the flagging economy.
Gross, speaking at a Treasury forum on the future of housing finance giants Fannie Mae and Freddie Mac, said a massive refinancing program to slash monthly mortgage payments could boost consumer spending by $50 billion to $60 billion and boost home prices by 5 to 10 percent.
Policymakers should quickly re-engineer a refinancing opportunity for all mortgagees that are current on payments and are included in GSE-securitized mortgages, said Gross, PIMCO's co-founder and co-chief investment officer.
The American economy is approaching a cul-de-sac of stimulus, both monetarily and fiscally, which will slow it to a snail's pace incapable of providing sufficient job growth going forward.
Such a program was needed in the next six months, he added.
Gross' suggestion is at odds with the Obama administration's housing rescue strategy, which has been focused on modifying failing mortgages to lower payments for struggling homeowners. A wholesale Fannie/Freddie refinancing program for those making their payments would be a major shift in policy.
After the conference, Gross told reporters he didn't think the administration would take up his proposal and added that he actually shouldn't have brought it up because the day's focus was on options for a new housing finance system.
Gross, who oversees more than $1 trillion in assets, also called for a full nationalization of Fannie Mae and Freddie Mac, consolidating them into a single government agency to provide full guarantees for mortgages.
He said it was unrealistic to assume that the private market could step in and replace GSEs as providers of home mortgage liquidity. It won't work, he said.
Without a government guarantee, mortgage rates would be hundreds -- hundreds -- of basis points higher, resulting in a moribund housing market for years, Gross said.
He said PIMCO would not consider investing in a private, or privately insured, mortgage pool unless it was accompanied by 30 percent down payments -- far above the current norm.
(Reporting by David Lawder; Editing by Theodore d'Afflisio and Dan Grebler)