Although President Obama Thursday night made a slight reference to a government-backed refi plan for troubled mortgagors, the effort appears to be temporarily stalled over concerns about what effect it would have on both MBS investors and the megabanks, according to advisors and trade group sources who claim to have knowledge of the program.

One advisor, requesting his name not be used, said “nothing is moving right now. The White House is considering a lot of ideas, but someone always objects to who will get hurt if they do this.”

Under a massive refi program MBS investors holding 6% bonds might find themselves holding 4% paper instead, officials explained. Investors who might get hurt include not only the GSEs themselves, but hedge funds, the Chinese government, and mortgage insurers.

Another concern is the megabanks and their servicing portfolios. “The worry here is what effect this will have on MSR values if banks like Wells [Fargo] can't recapture all the loans that refi,” said the advisor.

President Obama's joint speech to Congress on a national jobs proposal included no specifics about the refinancing program. However, later this month he is expected to unveil proposals on how Fannie Mae and Freddie Mac borrowers – some of them underwater on their loans – might potentially refinance mortgage debt that could total up to $2 trillion.

Some trade group officials have floated such ideas as the GSEs not securitizing newly refinanced loans but instead holding them in portfolio. “It's a good idea,” said one mortgage executive, “but Congress, of course, has said they don't want to grow Fannie and Freddie's balance sheets.”

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