After revealing his plan for the housing industry in mid-week, President Obama followed up on the theme of “helping American homeowners,” in his Saturday radio address. He beckoned the public to get in contact with their lawmakers, and urge them to pass his housing proposal, which could help millions of Americans refinance from high-interest rate loans into low interest rate mortgages.
The plan cost $5 billion to $10 billion and will need. The President proposes to pay for the initiative by assessing a fee on big banks. Homeowners who are behind on their mortgages or in foreclosure will not receive any financial relief from this proposal.
Private Market Mortgages
This mortgage refinance outreach helps homeowners who do not qualify for assistance under the other housing assistance programs, such as HAMP or HARP. Eligible borrowers will refinance into a Federal Housing Administration (FHA) mortgage, under a newly created program. FHA guarantees the mortgage, if the borrower defaults on the loan.
An estimated 3.5 million borrowers with privately held mortgages—loans not held or insured by FHA, Fannie Mae, Freddie Mac, or other federal program, will now have a viable option for refinancing out of high-interest rate home mortgages.
Private market lenders hold about 50% or 30 million outstanding mortgages. Count many of these homeowners among the 25% of homes, or 11 million borrowers who have underwater mortgages.
In a time of historic low interest rates, mortgage lenders have been reluctant to refinance these properties.
The new plan also calls for the two government Enterprises, Fannie Mae and Freddie to could earn incentives for principal reduction. Currently, only private lenders, qualified for the incentives when performing loan modifications. However, private lenders have not eagerly participated in principal reduction.
The administration believes that tripling the inducements will encourage more principal reduction activity from bankers.
Other Aspects of the Proposal
According to the mortgage refinance plan, the average homeowner will save as much as $3,000 a year. The administration says it does not need help from Congress to implement other parts of its plan.
The other items include:
- Introduce a Homeowner Bill of Rights, which ensures buyers and lenders understand he rules.
- Launch an investigation into mortgage origination and mortgage servicing issues that led to the housing crisis.
- Initiate a pilot program to turn the huge inventory of foreclosed homes into rental properties.
- Execute a plan to reduce the number of foreclosed homes and rehabilitate neighborhoods.
- Expand the home affordable modification program or HAMP.
HAMP changes the terms of the mortgage and reduces the loan payment amount, which consist of principal, interest, taxes, insurance, to 31% of the borrower's gross monthly income.
Fannie and Freddie have started working with unemployed homeowners by offering 12 months of forbearance, which consists of a written repayment agreement between the Enterprise and borrower.
A less talked about component of the plan is the proposed $15 billion it allocates for creating construction jobs to rehabilitate vacant and foreclosed houses and business properties.
Criticism of Obama's Plan
Some critics question the wisdom of the plan because continues to”subsidize” the mortgage industry, and it requires FHA to guarantee the mortgages. Another concern relates to a recent independent audit of FHA books. The accounting revealed the agency has $2.6 billion in reserves, which covers $1 trillion in outstanding loans. The report surmised the FHA might require a bailout in 2012.
Since Obama’s announcement of the plan, the only Republican action on the President's housing plan has been the usual partisan denunciations in interviews and sound bits. Spencer Bachus (R-Ala.), the House Financial Services Committee Chairman, responsible for getting the legislation to the floor, dismissed the proposal as “not a serious plan to help the nation’s housing market," says
Many Republicans have taken the opportunity to promote their jobs plan, versus Obama’s failed housing programs. They are pushing Obama to pass a payroll tax cut extension for an entire year. They also seek his support to grow the country's energy production, and rebuild roads and bridge infrastructure. The GOP promises their initiatives could create millions of jobs in the private sector.
According to President Obama, the FHFA has the authority to enact the steps outlined in this plan; however, because regulator of Fannie Mae and Freddie Mac has declined to exercise its powers, congress needs to mandate the changes. The cookbook
The White House also understands that a new tax on big banks will be difficult to pass, which is why they have place the obligation on the Republicans to come up with an alternative funding plan.
In support of the White House’s strong push to generate solutions for the housing market, last month the Federal Reserve Board sent a white paper to Congress, which steps to fix the housing market. The Feds strongly urge the body to take active steps to help with the housing market recovery.
It seems like both sides have the makings of a nonpartisan and comprehensive strategy to move the housing sector and the economy forward, if they could somehow work together.