Ezra Klein has a smart suggestion for a White House that has taken a "newly muscular approach" in taking on the Republicans: Use the next recess appointment for a new director of the Federal Housing Finance Authority, and then push a mass refinancing of loan backed by Fannie Mae and Freddie Mac.
In a white paper Klein references, the authors (including Glenn Hubbard, a Romney economic adviser) estimate that "more than 75 percent of the homeowners with 30-year mortgages backed by Fannie or Freddie are paying interest rates higher than 5 percent." With interest rates closer to four percent, millions of homeowners are paying more than they need to, but are justifiably resisting refinancing—the up-front costs or the fear of being scammed being two critical factors. But that's one thing that could be changed by the administration, without congressional interference.
[I]n a white paper released last week, the Federal Reserve echoed the consensus of many housing experts in finding that much could still be done if the authority could be convinced to interpret its mandate more broadly. “Actions that cause greater losses to be sustained by [Fannie and Freddie] in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery,” the Fed wrote.It's not a silver bullet for the economy, since the scope would be limited to maybe 10 million Americans, many of whom could still be upside-down on their mortgages. But cramdown, arguably the "best bet" to save the economy, isn't going to happen with this Congress, even if the White House was willing to force banks to take that haircut.
Here’s one example: If the White House recess-appointed a friendlier director, the agency could write the rules so that anyone with a loan backed by Fannie and Freddie and current on their payments for six months would be automatically approved for refinancing. Then — and this is crucial — the president could make Americans aware of this fact during the State of the Union and in subsequent public addresses. Fannie and Freddie could send a letter to every eligible homeowner. The combination of easier rules and vastly better publicity would lead many millions of Americans to refinance their loans.
The effect on the economy would be twofold: First, the refinancings would act like a high-powered tax cut for those homeowners who took advantage of them. As Hubbard and Mayer write, “Empirical evidence suggests that consumers spend a larger portion of permanent increases in income than temporary increases.“ And as these refinancings would lower payments, they’re as permanent as you can get in government policy. Second, it would make the Fed’s efforts to keep interest rates low more effective in stimulating the economy.
Nothing to spur economic growth is going to make it through this Congress. So President Obama needs to do what he can without Congress. Klein quotes Joe Gagnon, a senior fellow at the Peterson Institute for International Economics: "this is the single biggest thing the president can do without a vote in Congress. It’s a no-brainer. It’s been a no-brainer for years."