By Vicki Needham - 10/23/11 10:03 PM EDT
Housing policy could take center stage next week if a federal regulator and the Federal Reserve move forward with plans to help struggling homeowners.
The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, could announce new proposals as early as Monday to boost the ailing housing sector and spur the economic recovery, sources tell The Hill.
Edward DeMarco, acting director of the FHFA, has been telling lawmakers that the agency would soon take several concrete steps to help homeowners, including raising the loan-to-value ratio of 125 percent used for determining eligibility for the Home Affordable Refinance Program (HARP), enabling underwater borrowers with government-backed mortgages to refinance.
FHFA and Housing and Urban Development Department spokesmen told The Hill they had no comment on pending policy changes.
Federal Reserve Chairman Ben Bernanke spoke to Senate Democrats on Thursday and said more action is needed to bolster the housing sector.
On Thursday, Fed Governor Daniel Tarullo said the central bank should consider purchasing more mortgage-backed securities to help the housing market, with the intention of driving down loan rates to increase demand for new home purchases while providing "purchasing power of existing homeowners who are able to refinance," including those who owe more than their houses are worth.
"I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities, something the FOMC [Federal Open Market Committee] first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets," he said during a speech at Columbia University in New York.
The Fed has kept interest rates near zero, and mortgage rates have hit record lows in the past month.
He then took it a step further.
"Underwater borrowers whose loans are not guaranteed by GSEs [government-sponsored enterprises] are essentially unable to refinance at all," he said. "Policy changes directed at this last, larger group of homeowners would have to be carefully designed so as not to transfer credit risk from private investors to the government, and could well require legislation."
While the HARP program has helped some homeowners, "in practice, though, numerous obstacles have kept the program from helping many potentially eligible borrowers," he said.
Changes to HARP is where the FHFA comes into the picture — how far DeMarco and the agency will go should be revealed soon.
Some sources expect modest changes to HARP, but in a meeting with House Democrats on Oct. 6, DeMarco conceded that the program in its existing form isn't working and said his agency must go beyond making “tweaks” to the program and ensure that it is “fixed.”
Still, House Democrats are pressing for more.
House Oversight and Government Reform Committee ranking member Elijah Cummings (D-Md.) and Rep. Dennis Cardoza (D-Calif.), co-chairman of the Housing Stabilization Task Force, sent a letter to DeMarco on Friday expressing their profound frustration with the FHFA for its lack of urgency in addressing the crisis, and asking for a more aggressive approach.
“We expressed our concern that even if FHFA implements all of the changes you [DeMarco] referenced, the program is likely to reach only a few hundred thousand homeowners, while millions of families are struggling and the housing market continues to spiral downward, negatively affecting the entire economy,” they wrote in the letter.
During the last meeting they asked DeMarco to implement President Obama's plan to help homeowners current on their payments with Fannie or Freddie refinance their mortgages at low rates.
They called for another meeting Wednesday “to ensure that Members are consulted” about FHFA's proposals before announcing them publicly.
A House Democratic aide said Friday they weren't aware of any FHFA announcements for next week.
Any FHFA announcement before another meeting could strain an already tension-riddled relationship between DeMarco and House Democrats.
Cardoza, who announced Thursday he won't run for reelection after five terms in the House, has emerged as one of the most vocal House advocates for improved policies to help stem the tide of foreclosures, as well as one of the harshest critics of the Obama administration's efforts.
In his retirement announcement, Cardoza said he's "dismayed by the administration’s failure to understand and effectively address the current housing foreclosure crisis."
"Home foreclosures are destroying communities and crushing our economy," he said, "and the administration’s inaction is infuriating."
While agencies and the Obama administration contemplate what to do, there aren't too many other housing proposals floating around the halls of the Capitol. Nonetheless, some have created strange bedfellows.
Sens. Barbara Boxer (D-Calif.) and Johnny Isakson (R-Ga.) have teamed up on legislation that would allow homeowners who are on time with their payments but underwater on their mortgages to refinance into lower rates — an effort to help them avoid losing their homes.
On Thursday, Sens. Charles Schumer (D-N.Y.) and Mike Lee (R-Utah) announced a unique plan that would offer a three-year residential visa to foreign homebuyers who invest at least $500,000 in the United States. At least $250,000 must be spent on a primary residence where the visa holder will reside for at least 180 days out of the year while paying U.S. taxes.
The plan, which got a nod from one homebuilder, Toll Brothers, could help the housing market shed an excess supply of homes.
Foreign nationals reportedly invested $82 billion in similar transactions last year, up from $66 billion in 2009, according to a Senate aide.
The proposal has the possibility of clearing out "a very significant numbers of homes" to boost the sector that is "dragging our economy down," Schumer told reporters Thursday during a conference call.
"It won't solve [the problem] single-handedly but it will make a real dent," he said.