“I’ll be honest,” President Obama said this morning, “it didn’t work at the scale we’d hoped.” He was talking, of course, about the administration’s housing policy. And he was arguing that there was a way to fix it.
The administration’s new plan (fact sheet here) is to spark a massive wave of mortgage refinancing. If it is passed, almost every homeowner who has been current on their payments for the last six months and has a credit score of 580 or higher could refinance their mortgage. There would be no new appraisal cost. And under the terms of this legislation, it wouldn’t matter if your mortgage was backed by Fannie or Freddie. Homeowners whose loans weren’t bought by the mortgage giants could refinance through a new program run through the Federal Housing Administration.
In choosing to expand the program beyond Fannie and Freddie, the administration has also expanded the program beyond what it has the executive authority to do on its own. If they just wanted to further streamline the HARP program, they could recess appoint a new director for Fannie and Freddie and get to work. Creating the new program through the FHFA -- and paying for it through a new tax on banks -- requires congressional approval, and few think House Republicans are likely to sign onto a new tax.
The administration argues that there has been bipartisan support for refinancing initiatives in Congress. In the Senate, for instance, Republican Johnny Isakson (Ga.) has cosponsored legislation with Democrat Barbara Boxer (Calif.). And there’s no doubt that legislation produced with Congress’s cooperation can do much more to extend refinancing help than executive actions. But the question remains: If Congress ignores this bill, as they have ignored so many of the Obama administration’s other initiatives, is the White House sufficiently committed to leave Congress behind and use Fannie and Freddie to go their own way?