President Obama announced this week that he would be seeking passage of a new updated mortgage relief plan aimed at helping underwater homeowners to refinance their properties and take advantage of historically low rates. The bill has an uphill climb, however, as Republican legislators have announced their opposition to the plan as another waste of money, and a drag on business and hiring.
This isn't the first time we've heard of a mortgage relief program to help underwater homeowners as Obama has floated ideas like this in the past. The programs have had decidedly mixed results, however, with the Making Home Affordable home modification program seeing over half of the people enrolled in the program dropping out. Other programs have had mixed results as well in part because of homeowners unable to fulfill obligations and largely in part to banks not participating in the programs or making it extremely difficult.
Obama Mortgage Refinance Plan
So what are the details of this new refinance program? How does it differ from previous programs? From the Washington Times:
Only three months after proposing a mortgage-relief plan, President Obama went back to the drawing board Wednesday with another proposal, paid for by a new tax on big banks, that would allow millions of “underwater” borrowers to refinance home loans.
The president’s latest plan, which he outlined in his State of the Union address last week, would allow underwater homeowners – those who owe more than their homes are worth – to refinance their mortgages into loans backed by the Federal Housing Administration (FHA). Borrowers could not have more than one late payment in the past six months, and banks would be required to reduce mortgage balances for homeowners who owe more than 140 percent of their home’s value.
The administration says about 3.5 million borrowers would likely qualify for the plan. While the effort last year applied to homes financed through mortgage giants Fannie Mae and Freddie Mac, this latest proposal would help borrowers with private-sector bank loans.
So approximately 3.5 million borrowers may qualify for the program – and you don't have to have a loan that is backed by Fannie Mae or Freddie Mac, as with previous mortgage relief programs.
People looking to refinance under this program would have to meet the following criteria:
- Be current on their loan payments with no late payments in the last six months – and only one in the past year.
- Have a credit score above 580.
- Their loan would also have to be within the FHA’s limits of $271,050 to $729,750.
- Loan To Value ratio of below 140.
The program would cost between 5 and 10 billion dollars, and Obama proposes to pay for it by levying a tax on large banks. Because of that many banks and mortgage giants have come out against the proposal.
Reactions To The Plan
Reactions to the refinance plan have been mixed. Based on the lackluster response to past programs many folks doubt that this plan would have much effect either.
Others say that it doesn't matter much either way as the plan has too much opposition in the Congress, and isn't likely to pass.
Douglas Holtz-Eakin, president of the American Action Forum, says the plan is more politics than anything.
“The President’s proposal appears to be more politics than policy. As structured, an expansion of FHA subsidies to refinance does not appear likely to pass Congress, so its policy effectiveness is in doubt. Moreover, even if passed, $10 billion or so would have no serious impact on underwater homeowners when the overall negative equity exceeds a half trillion dollars. The White House must know this, leading one inevitably to conclude that this is campaign rhetoric and not real help for real people.”
David Stevens, president and CEO of the Mortgage Bankers Association, says that the program has some appeal to underwater homeowners, but a tough battle to be passed:
“The mass refinance proposal will have appeal to those that are sitting in homes, underwater, and feel like they have been left on the sidelines during this interest rate rally that has brought mortgage rates to near historic lows. I think the refinance announcement’s biggest hurdle is going to come when it faces the reality of needing congressional approval. The funding mechanism, the moral hazard, the re-default risk, and the role of government intervention in housing will likely create divides on both sides of the debate that will make the likelihood of this moving forward an uphill climb.”
Still others say that the program is a positive one that could help jumpstart the housing market.
What are your thoughts on President Obama's new housing plan? Will it be passed, and if so, will it help people as promised?