Back at a Roosevelt Institute conference several months ago, I was on a panel with Joe Gagnon where he expressed surprised at a failure of coordination between fiscal and monetary authorities. One of the goals of quantitative easing, he said, was to make it possible for homeowners to refinance their loans at lower interest rates. The stimulative effect seems simple enough to see. With a lower monthly interest payment, an indebted household can pay down other debts more rapidly. A less-constrained household will increase its consumption of goods and services. But it hadn’t happened, even though with Fannie Mae and Freddie Mac nationalized it was in the administration’s power to make it happen.
Or was it? More recently, Gagnon had been pushing this idea in the press again, and I tried to bug some Folks In The Know about it. What I heard back was that Fannie & Freddie are overseen by an independent regulator, the FHFA, and the White House can’t just order Acting Director Edward DeMarco. When I shopped that account back proponents of mass refinancing they were a bit incredulous. Is the president really incapable of persuading FHFA Acting Director Edward DeMarco to take action that he and his advisers believe is in the public interest? Really? I’m not a huge believer in the “bully pulpit,” but it hardly seems obvious that FHFA Acting Director Edward DeMarco is some kind of immovable object of political obstruction.
Today the administration seems to have decided that the skeptics are right, and has planted a story in The New York Times saying that the administration is considering the mass refinancing deal. It does contain the needed proviso:
But government officials cautioned that Fannie and Freddie do not do the administration’s bidding, even though they are essentially owned by taxpayers. Edward J. DeMarco, who oversees the companies as acting director of the Federal Housing Finance Agency, has voiced concerns about any plan that might cost the companies money, according to the two people briefed on the discussions. “F.H.F.A. remains open to all ideas that provide needed assistance to borrowers” while minimizing the cost to taxpayers, Mr. DeMarco said in a written statement.
I know some progressives are already looking beyond this leak to poo-poo the impact of refinancing and talk about the need for principle write-downs. That’s fine. But I do urge people to pay attention to the precise veto points in the system. Right now there’s an idea — mass mortgage refinancing — that will help millions of households and stimulate the economy. By stimulating the economy, it will make it easier to advance progressive goals on every single front. And it will be done if FHFA Acting Director Edward DeMarco decides that it’s a good idea. Persuading FHFA Acting Director Edward DeMarco to do this will make it happen. But if he’s not persuaded, it won’t happen. So for the moment, at least, I would really urge people to focus their energies on this point. The FHFA has conveniently put contact information for key officials on its website if you want to let people know how you feel.