Ezra Klein: President Obama still wants to refinance your mortgage. Can that work?

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Obama still wants to refinance your mortgage. Can that work?
By Brad Plumer

The bulk of President Obama’s new economic plan is subject to the not-so-tender mercies of Congress. If Republicans don’t feel like voting for the American Jobs Act, then there won’t be an American Jobs Act. But there’s one big exception. In his speech last night, Obama mentioned that his economic team would work with the federal housing agencies “to help responsible homeowners… refinance their mortgages at interest rates that are now near 4 percent.”

What’s he talking about? As the Wall Street Journal’s Nick Timiraos reports, the White House is pushing for changes to an existing program, the Home Affordable Refinance Program (HARP), which allows borrowers with loans guaranteed by Fannie Mae and Freddie Mac to refinance their mortgages. Right now, rates on 30-year fixed mortgages are at 4.12 percent, their lowest level in half a century, so letting homeowners refinance could put a lot of money in their pockets.

Most conveniently, from the White House’s perspective, this plan doesn’t need approval by Congress. It just needs buy-in from the Federal Housing Finance Agency. True, as Ezra and I have reported, the FHFA hasn’t always been kind to Obama’s housing initiatives, but the agency does seem tentatively receptive to this idea. That said, previous plans to allow refinancing—including HARP itself—haven’t worked very well. Why should this time be any different?

Here’s what the CBO predicts the results would be: About 2.9 million homeowners would take the government up on its offer, saving $7.4 billion in lower monthly payments in the first year alone. An additional 111,000 borrowers would avoid default, which would, in itself, save Fannie Mae and Freddie Mac—and hence taxpayers—$3.9 billion.

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