President Obama traveled to Virginia today to talk up his mortgage refinancing plan, and included an interesting phrase.
“Now, the truth is, it will take more time than any of us would like for the housing market to recover from this crisis. Home prices started a pretty steady decline about five years ago now. And government certainly can’t fix the entire problem on its own. But it is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom. I refuse to accept that, and so do the American people.”
And who wants struggling, responsible homeowners to sit and wait for the housing market to hit bottom? That would be the president’s likely Republican challenger in the fall. Mitt Romney said in October:
“Don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” Romney said when asked what he would do to jump-start the floundering housing market.
When making a list of what issues are likely to be important in the general election, it’s probably best to put housing policy near the top of the list.
As for the substance of the president’s latest proposals, Matt Yglesias had a good item arguing that the White House plan “could boost the economy” if implemented. One major channel through which the kind of low interest rates prevailing today normally help spur economic recovery is that people refinance their mortgages which increases the amount of money they have free to direct toward other things. Indeed, I myself am currently going through the process of refinancing my mortgage. It should end up saving me a few hundred bucks a month plus reducing the life of the loan by a year. Unfortunately, many people currently can’t refinance their loans because their mortgage is “underwater.” What they owe is more than what the house is worth. This becomes a bit of a recursive issue. Unless economic activity (and therefore incomes) revive, it’s difficult for house prices to do anything other than go down. But the low house prices are impeding refinancing — one of the main tools we rely on to boost economic activity. The good news, however, is that Fannie Mae and Freddie Mac are now officially instruments of the U. S. government meaning that in principle the regulatory agency that oversees them could just order them to go ahead with a plan for large-scale refinancing of underwater mortgages. The bad news is that Edward DeMarco, acting director of the Federal Housing Finance Agency, has chosen to take a very literal view of his statutory mandate such that his job is to make money for Fannie and Freddie rather than serve the broad public interest. Thus, Obama’s plan which is basically to sweeten the pot.
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