In his weekly address to the nation, President Obama laments the fact that Congressional members left for their recess with “a whole bunch of proposals sitting on the table.” He pointed to the plans Congress failed to address, which include schemes on jobs, the economy and middle-class security. The unfinished business also includes legislation designed to help struggling homeowners complete the task of mortgage refinance.
Members of Congress will not get back to work until after the upcoming presidential elections.
Responsible Homeowners Hurt
According to the President, millions of homeowners “who did the right and responsible thing” home choosing a searched for a residence and obtaining a home loan within their means. Many of these homeowners kept up their end of the bargain by making their mortgage payments when due. However, they were harmed not by their own doing but “by the irresponsible actions of others.”
President Obama cited mortgage lenders who marketed risky loan products, securitized the risky loans and sold them as mortgage-backed securities to unsuspecting investors. He also mentioned residential real estate speculators who help drive up the housing prices and unload properties for hefty profits.
These activities culminated in a housing bubble, which ended up hurting middle-class homeowners. According to data released by Corelogic, approximately 4.5 million borrowers lost their homes to foreclosure after the real estate market crashed in 2007.
Mortgage Refinance Plan
Obama places blame squarely on the shoulders of Republicans lawmakers for not passing the housing legislation the President sent to Congress in February. The bill reduces red tape and provides responsible homeowners the opportunity to refinance from high interest rate mortgages into low interest rate home loans. Borrowers can save an average of $3,000 per year.
The bill introduced by Sens. Barbara Boxer ( D-Calif.) and Robert Menendez ( D-N.J.) would expand the current Home Affordable Refinance Program (HARP) to millions of borrowers who have loans insured or owned by Fannie Mae and Freddie Mac. Senator Boxer also introduced legislation in May that would create a $6 billion fund to help homeowners who have underwater FHA-mortgages refinance to low-interest loans.
The President referenced the federal government’s work with the states attorneys general to investigate the housing crisis -- specifically the robo-signing scandal. The government team examined the activities of five major banks concerning their handling of homeowners facing foreclosure. The investigation ultimately led to a $25 billion mortgage settlement. Forty-nine states divided up the proceeds. Oklahoma worked out a separate settlement.
As part of the agreement, the lenders – Citibank, JP Morgan Chase, Well Fargo, Ally Financial, and Bank of America, agreed to refinance the mortgages of hundreds of thousands of homeowners from high-interest rate mortgages to home loans at record-breaking low rates. Some homeowners also received principal reductions.
Helping families reduce their mortgage payment has a positive effect on the general economy. These homeowners will likely spend the extra money on goods and services in their local communities. In turn, companies will hire more workers to keep up with demand.
Housing Market Recovery
The data regarding housing market recovery has been positive. The latest report from the National Association of Realtors shows existing-home sales increased 7.8 percent during August—the largest year-over-year increase recorded in more than two years.
New-home sales and applications for permits have also increased, and homebuilders feel confident about the near-term outlook for the housing market. With home values starting to appreciate, the array of encouraging housing indicators points to a bottom forming in the housing industry.
The President notes that the sector is “moving in the right direction, but “millions of Americans” still have a difficult time trying to get a mortgage refinance “at a time of historically low rates.”