Barely two weeks after President Obama proposed expanding a government mortgage refinance program in order to make millions more borrowers eligible, the man who would have to guide such a program announced yet another barrier to entry.
The President's plan would work through Fannie Mae and Freddie Mac and their existing Home Affordable Refinance Program (HARP), by potentially eliminating loan-to-value ratios and lowering fees. But fees at Fannie and Freddie are about to go up, according to their conservator, the Federal Housing Finance Agency (FHFA).
"A logical next step in conservatorship is to continue down the path already started of gradually increasing guarantee fee pricing to better reflect that which would be anticipated in a private, competitive market," acting FHFA director Ed DeMarco told an audience of mortgage bankers today day in Raleigh, NC.
When I pressed him on this point after his speech, DeMarco told me, "I don't believe that fees are, certainly fees alone in the current refinance program is the key barrier to further thorough put on this program."
He went on to defend the higher fees as part of the Administration's plan to ultimately phase out Fannie and Freddie and bring the private market back in to mortgage investing.
"The long-term path forward, both for the companies and conservatorship, and the best outcome for the country is to gradually move more mortgage credit risk activity into the private sector and to have greater reflection of what would be private sector pricing," argued Demarco.
It is a familiar argument for DeMarco, who is constantly caught between what is best for the books of Fannie Mae and Freddie Mac and what will ultimately help save the still-struggling housing and mortgage markets. DeMarco was in fact more defensive than ever when I suggested that he defends the two mortgage behemoth at the cost of the overall housing market.
"For your listeners to be clear, the American taxpayer is the one that is supporting Fannie Mae and Freddie Mac. I feel like what I'm doing is I'm following the law as it exists today, and that law is to protect the American taxpayers," said DeMarco.
DeMarco is following Congress' mandate, to be sure, but politics, as always, are now overriding that mandate. President Obama needs to be able to claim he's doing something to help struggling borrowers, because ignoring the housing crisis is a huge political negative right now. However, the fact remains that if the President wants to refinance more borrowers, then guarantee fees at Fannie and Freddie have to come down. Despite what DeMarco claims, industry experts tell me they are the primary barrier to entry for the bulk of potential refinancers. Less than a million borrowers have refinanced through HARP to date, and that is far fewer than hoped or even expected.
The President's proposal, like so many of the government's housing bailouts, will likely be long in coming and short on results. Furthermore, the refinance proposal is an economic, spending stimulus, not a housing market stimulus. There are still millions of borrowers behind on their mortgages, whom this program would not even address. There are also millions more foreclosures heading to the housing market over the next year which will only lower overall home prices further and put more borrowers in trouble. This housing crisis is feeding on itself, while the Administration and federal regulators waste valuable time and energy on politics and proposals that don't come close to addressing the real problem.
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