"It" is large-scale mortgage relief for underwater homeowners. Bair, McCain-Holtz-Eakin, and Feldstein called for principal writedowns. Hubbard wants interest rates reduced to today's low levels:
In particular, frictions in the mortgage market and low equity levels have restricted the ability of tens of millions of borrowers to take advantage of very low interest rates by refinancing their mortgages.
This has blunted a key channel of monetary policy and led to large numbers of foreclosures. Household balance sheet repair would be accelerated if every homeowner with a mortgage through Fannie Mae and Freddie Mac who is current on payments were allowed to refinance their mortgage at the current very low rates. It would reduce debt-service burdens and offer the equivalent of a long-term tax cut (over the life of the mortgage) of up to $70bn annually. The credit risk of these mortgages has been borne by taxpayers since 2008 anyway, so the refinancing would not increase the Treasury’s risk exposure. It should reduce it, as defaults diminish.
Ezra Klein recently imagined an alternative universe in which Republicans today united behind mortgage relief -- Martin Feldstein style -- as a credible alternative to Obama's jobs bill:
“Republicans,” McCain said on Earth 2, “have a better idea than more tax cuts and government spending. The economy isn’t growing because households are buried under mortgage debt. So we propose to attack the problem at the source. On the advice of Harvard’s Martin Feldstein, we are introducing legislation that would empower the federal government to absorb mortgage principle that exceeds 110 percent of the home value. But because we can’t simply reward banks who made irresponsible lending decisions, they will have to absorb half of the losses. And because we can’t simply reward homeowners who took out irresponsible loans, they will have to agree to a form of enhanced bankruptcy in which falling behind on their mortgage opens all of their assets to seizure.”Here on Earth 1, Republicans currently in office will not propose anything that might improve the economy before the 2012 election. But mortgage relief, as Obama might say, is not a Republican or a Democratic idea. It is recognized across the ideological spectrum as a vital spur to the deleveraging process that is weighing down the economy. Moreover, it's a course of action that the administration could execute without input from Congress if the FHFA, the conservator for Fannie and Freddie, would work the administration's will. So where the hell is Obama?
On it, faintly, maybe. In the speech unveiling his jobs bill on September 8 he included this promise:
And to help responsible homeowners, we’re going to work with Federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4% -- a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.But that, apparently means working with acting head of the FHFA, Bush appointee Edward DeMarco -- a bulwark this many a year against allowing Fannie and Freddy to engage in large-scale refinancings, to rejigger the sclerotic Home Affordable Refinance Program (HARP) -- a high-cost, red tape-laden program that has restructured less than a million mortgages since its 2009 launch. Estimates are that reducing some costs and widening eligibility along the lines contemplated by DeMarco would enable refinancing for 600,000 to 1 million additional mortgages - still far below the 4 to 5 million homeowners the administration's programs were initially designed to help.
In an all-too-familiar pattern, Republican Senators blocked confirmation of Obama's nominee to replace DeMarco, Joseph A. Smith, who withdrew his nomination earlier this year. The administration meekly acquiesced and has put no new nominee forward. House Democrats have been driven nearly insane with frustration, which they vented in an October 6 meeting with DeMarco:
“I said to him twice, ‘Mr. DeMarco, if you cannot do this job — or if you don’t feel like you’re capable of helping the people that we represent — maybe you should move to the side and let somebody else come and replace you,’” Rep. Elijah Cummings (D-Md.) told reporters after the meeting. “That’s just fair.”.The California Democratic House delegation has since sent a letter to Obama urging far more vigorous action, e.g:
• Urge the Federal Housing Finance Agency to establish a plan to refinance all mortgages owned or guaranteed by Fannie Mae and Freddie Mac.David Dayan argues forcefully that the Obama administration has never wanted to engage in robust mortgage relief -- scared off both by the toxic politics of helping some homeowners while others are left to their own devices, and their fear of putting financial pressure on the banks.
• Push for a major principal reduction plan for underwater homeowners, such as modifications in coordination with Chapter 13 bankruptcy filings.
• Institute a “Homeowner’s Bill Of Rights” that would apply to HAMP, FHFA, HUD, VA and private servicer modification programs and include the following:
o Make the process homeowner-friendly: Ensure a single point of contact; require servicers to review documents within a timely fashion and disclose information; and ban “advanced fees.”
o Eliminate needless obstacles to effective modifications: Allow for flexibility in the debt to income ratio; end the requirement that homeowners be delinquent in order to be eligible for a loan modification; end dual tracking; and require that servicers not report adverse credit information while trial or permanent modification is underway;
o Ensure accountability and establish an appeals process: Create an Office of Consumer Advocate; conduct random audits of modifications; and establish an independent appeals process for homeowners who believe their modification has been improperly rejected or handled in violation of program rules
Evidence is pretty overpowering that he's right. How else to explain leaving DeMarco in place for close to three years? But perhaps we can hope that this is one more front on which desperation will beget a swift change of course for Obama.