The Obama White House yesterday offered details of its mortgage refinancing plan, an initiative first announced during the president’s State of the Union Address, claiming it could save homeowners an average of $3,000 a year.
In short, the plan would allow the roughly 3.5 million underwater homeowners who are current on their mortgages to refinance their loans using today’s historically low interest rates. Though government plans with similar features have existed before, most notably the Home Affordable Modification Program, this new program would be open to owners of private, non-government loans.
As of this writing, 30-year FRMs are down to 3.87 percent, and 15-year FRMs are down to 3.14 percent.
“If you’re underwater through no fault of your own and can’t refinance, this plan changes that,” Obama said in a Wednesday speech in Falls Church, Va. quoted by CNNMoney.
The plan has several eligibility requirements. Borrowers cannot have entered delinquency in the last six months, and had no more than one late payment in the six months prior. Their credit scores must be 580 or better, and their mortgage balance cannot exceed the loan limits for Federal Housing Administration (FHA) loans which differ by state and county (they range from $271,050 all the way to $729,250).
The program will also offer a 20-year loan option for homeowners that will not reduce monthly payments but enable equity to build more quickly; to sweeten the deal, the FHA would cover the closing costs of the refinancing.
In addition, the plan would require lenders to take haircuts and write down deeply underwater mortgages with LTVs of 140 percent or higher, in order to reduce the chances of default.
The Obama administration has estimated that the plan will cost between $5 billion and $10 billion, and it is looking to finance its hefty price tag by charging a small tax on larger banks – an option that may prove challenging, considering the plan will require congressional approval.
Reactions to the President’s plan have been mixed. In a HousingWire piece summarizing the political response, David Stevens, the CEO of the Mortgage Bankers Association, was supportive of the plan.
“MBA agrees that a single national set of standards can help provide confidence and certainty in the real estate market for borrowers, lenders and servicers alike,” Stevens said. “I want to commend the administration for recognizing that more can be done get our housing market on track. The programs announced today will give lenders and other stakeholders additional tools to help borrowers and foster a renewed confidence in our real estate finance system.”
Leading Republican lawmakers, however, seem non-receptive to Obama’s proposal, if not hostile. In the same HousingWire piece, Rep. Spencer Bachus, a Republican from Alabama who chairs the House Financial Services Committee, said the program was more of the same from Obama.
“This is not a serious plan to help the nation’s housing market,” Bachus said. “This is just more of the same from an administration that offers expensive program after expensive program, none of which have worked to help struggling homeowners. President Obama is proposing to get out of the hole we’re in by digging deeper.”
Rep. Scott Garrett, a Republican from New Jersey who chairs the House GSE and Capital Markets subcommittee, was similarly dismissive in his comments in a National Mortgage News piece.
“Until the president gives up his crusade to increase the government’s interference in the housing market, home foreclosures will continue to rise, our economy will continue to falter and every American’s share of the national debt will continue to grow,” the chairman of said.
And then there were some analysts that felt the President’s plan, though a positive step, did not go far enough, like Ethan Handelman, the vice president for policy and advocacy at the National Housing Conference.
“President Obama’s announcement today reinforces what we all know—we need coordinated action at many levels to restore housing markets, help struggling households, and support a broader economic recovery,” Handelman said. “More, however, is needed … The proposals announced today are a step in the right direction. More can be done, using shared appreciation mortgages, structured short sales, and other proven means to reduce outstanding debt, while improving returns to lenders and preventing painful and destabilizing foreclosures. If leaders of both parties come together now, they can take concrete steps to prevent foreclosures, stabilize neighborhoods, and secure safe, decent, and affordable housing for all in America.”