Obama outlines homeowner relief plan, which faces uphill battle

WASHINGTON — Putting meat on the bones of a State of the Union pledge, President Barack Obama on Wednesday unveiled a controversial plan to help homeowners who are current on their mortgage payments refinance their mortgages into federally insured loans at today's extremely low rates.

The plan seeks to help homeowners who are unable to take advantage of low lending rates because they owe more than their home is now worth, a predicament known as being "underwater" on their mortgage.

"If you're ineligible for refinancing just because you're underwater on your mortgage, through no fault of your own, this plan changes that," Obama said during a speech in Falls Church, Va., a suburb outside the nation's capital. "You will be able to refinance at a lower rate. You'll be able to save hundreds of dollars that you can put back into your pocket."

Obama went to great pains to stress that the new program aims to help responsible homeowners who are hurt by falling home prices and not those buyers who overreached and bought more than they could afford.

In either case, millions of homeowners across the country are trapped in homes worth less than the mortgage they carry, and thus are unable to refinance to improve their cash flow.

Obama estimated annual savings of up to $3,000 for individual homeowners able to tap his plan. However, they'd still own a home worth less than its mortgage and taxpayers would be at risk if these homeowners eventually walked away from their new loans.

The program's cost is estimated at between $5 billion and $10 billion. To pay for it, Obama proposed a tax on the nation's biggest banks. Republicans who control the House of Representatives have already balked at that idea, making it likely that the proposal will become little more than a political hammer for each side to swing at the other.

House Speaker John Boehner, R-Ohio, told reporters during a stakeout Wednesday that numerous administration efforts to assist homeowners have failed and that the housing market instead needs to be allowed to bottom on its own.

"None of these programs have worked," Boehner said. "And I don't know why anyone would think that this next idea is going to work."

The financial sector didn't expect the president's proposals to advance.

"We all agree that getting any legislation through will clearly be an uphill battle," said David Stevens, president of the influential Mortgage Bankers Association.

During a conference call, the association questioned the timing of the president's State of the Union pledge to create a new task force — in his fourth year in office — to combat fraud in mortgage finance. The group also complained that a range of enforcement and regulatory measures are creating harmful uncertainty that is restricting lending.

"Certainly at this point, resolving these issues and moving forward is something that must be done," said Stevens, acknowledging that lenders are holding back. "This Groundhog Day, waking up every day with the same problems, has got to get resolved."

Consumer advocacy groups applauded Obama's proposal and the bank tax that would pay for it.

"Homeowners who have been making their mortgage payments but saw the value of their homes slide because of house price deflation for which they are not responsible should be able to lower their payments," Barry Zigas, director of housing policy for the Consumer Federation of America, said in a statement. "Today's proposal offers a sensible and modest federal 'helping hand' that is long overdue."

Obama's plan would let the Federal Housing Administration, Freddie Mac and Fannie Mae insure underwater mortgages up to 140 percent of current appraised value. A home could be worth 40 percent less than its appraised value and still qualify for insurance on a refinanced mortgage. The bank tax would be used to bolster the reserves of the Federal Housing Administration. The FHA would handle mortgages that are now being held by private-sector lenders in a secondary market, while the rule change would make it easier for Fannie and Freddie to refinance loans they already hold.

Obama also announced administrative changes that don't need congressional approval. These included a trial sale of foreclosed homes in government hands to be sold to owners willing to turn the properties into rental units.

The president also announced a new Homeowners Bill of Rights. Key to that is the new Consumer Financial Protection Bureau, which is working to create simpler, clearer language in mortgage disclosure forms used during home sales.

"Simple, not complicated. Informative, not confusing. Terms are clear. Fees are transparent," the president said.


White House Plan

Draft CFPB Mortgage Disclosure Form


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