Obama seeks to broaden reach of housing assistance

Pres­i­dent Barack Obama speaks at the James Lee Com­mu­nity Cen­ter Wednes­day in Falls Church, Va.. Obama out­lined a pro­posal he pro­posed in his State of the Union address to allow home­own­ers with pri­vately held mort­gages to take advan­tage of record low rates, for an annual sav­ings of about $3,000 for the aver­age bor­rower. (Asso­ci­ated Press | Cliff Owen)

BEN FELLER

JIM KUHNHENN

Asso­ci­ated Press

FALLS CHURCH, Va. — Con­ced­ing his ear­lier hous­ing pro­grams have fallen short, Pres­i­dent Barack Obama on Wednes­day pro­posed a vast expan­sion of gov­ern­ment assis­tance to home­own­ers, aim­ing to make lower lend­ing rates a pos­si­bil­ity for mil­lions of bor­row­ers who have not been able to get out from under bur­den­some mortgages.

The president’s pro­posal is laden with election-year pol­i­tics and faces a dif­fi­cult path in Con­gress. Obama wants to pay for the esti­mated $5 bil­lion to $10 bil­lion cost with a fee on the nation’s largest banks, a pro­posal that has failed to win sup­port even when Democ­rats con­trolled both the House and Senate.

In addi­tion, its poten­tial impact could be lim­ited by the fact that it would not apply to bor­row­ers who are behind on their home loan pay­ments, those most threat­ened by foreclosure.

The hous­ing issue, while national in scope, par­tic­u­larly res­onates in elec­tion bat­tle­grounds such as Nevada and Florida that have faced record fore­clo­sures. Obama him­self drew atten­tion to the pol­i­tics sur­round­ing the issue with a jab at for­mer Mass­a­chu­setts Gov. Mitt Rom­ney, now the front-runner in the Repub­li­can pres­i­den­tial con­test. Rom­ney in Octo­ber sug­gested the fore­clo­sure process should be allowed to “run its course and hit the bottom.”

With­out nam­ing Rom­ney, Obama said: “It is wrong for any­one to sug­gest that the only option for strug­gling, respon­si­ble home­own­ers is to sit and wait for the hous­ing mar­ket to hit bot­tom. I refuse to accept that, and so do the Amer­i­can people.”

Obama is ask­ing Con­gress to pass leg­is­la­tion that would make it eas­ier for more bor­row­ers to refi­nance their loans, cre­at­ing a new pro­gram through the Fed­eral Hous­ing Admin­is­tra­tion that would have the gov­ern­ment assume the risk for the new mortgages.

Obama cast the effort as not only a needed step to spur the econ­omy but as a nec­es­sary boost to America’s sense of identity.

“This hous­ing cri­sis struck right at the heart of what it means to be mid­dle class in Amer­ica: our homes, the place where we invest our nest egg, place where we raise our fam­ily, the place where we plant roots in a com­mu­nity, the place where we build mem­o­ries,” Obama said. He spoke at a com­mu­nity cen­ter in north­ern Vir­ginia, out­side Washington.

Obama’s pro­posal is the lat­est admin­is­tra­tion effort to help home­own­ers in the face of a mas­sive num­ber of fore­clo­sures and plung­ing house val­ues that have left mil­lions owing more than their homes are worth. About 11 mil­lion Amer­i­cans — roughly 1 in 4 with mort­gages — are under­wa­ter, accord­ing to Core­L­ogic, a real estate data firm. Half of all U.S. mort­gages — about 30 mil­lion home loans — are owned by non­govern­ment lenders.

Despite his­toric low inter­est rates, how­ever, banks have been reluc­tant to refi­nance loans of such “under­wa­ter” home­own­ers. Under Obama’s plan, an eli­gi­ble home­owner would be able to refi­nance a loan through the FHA, which would guar­an­tee the new loan, assum­ing the risk if the bor­rower should default. The fee on large banks that Obama is propos­ing would finance the FHA’s insur­ance fund.

The plan faces long odds in Con­gress. Rep. Spencer Bachus, R-Ala., chair­man of the House Finan­cial Ser­vices Com­mit­tee, said the refi­nanc­ing plan pro­poses “to get out of the hole we’re in by dig­ging deeper.”

“He wants lenders to make more of the same risky loans with­out doc­u­men­ta­tion of income or abil­ity to repay that got us into this mess in the first place,” Bachus said.

Seek­ing to reas­sure such skep­tics, Obama empha­sized that the pro­gram would apply only bor­row­ers who have been cur­rent on their pay­ments for at least six months and not missed more than one pay­ment in the six months pre­ced­ing that. Their loans would have to fall within the mort­gage lim­its set by the FHA in their home coun­ties — a range from $271,050 in low­est cost areas to $729,750 in the high­est cost areas.

The plan, Obama said, would “not help the neigh­bors down the street who bought a house they couldn’t afford and then walked away and left a fore­closed home behind.”

The admin­is­tra­tion esti­mates that 3.5 mil­lion bor­row­ers with pri­vately held mort­gages have high enough inter­est rates that they would have incen­tive to refi­nance their mort­gages through the FHA.

That’s in addi­tion to 11 mil­lion bor­row­ers who have loans guar­an­teed by the government-affiliated mort­gage giants, Fan­nie Mae and Fred­die Mac, who could be eli­gi­ble for refi­nanc­ing under the administration’s pro­posed changes.

Still, econ­o­mists say that with­out reduc­ing the bur­den on home­own­ers who are late on their pay­ments, any new hous­ing pro­gram will achieve little.

“Any­one who is already behind on their mort­gage pay­ments, and is there­fore much closer to actu­ally los­ing their home, won’t ben­e­fit,” said Paul Dales, senior U.S. econ­o­mist at Cap­i­tal Eco­nom­ics. “As such, the pol­icy won’t do any­thing to reduce the moun­tain of 3 mil­lion homes that are still at risk of foreclosure.”

Bankers oppose Obama’s pro­posal to impose a fee on large banks to pay for the pro­gram and Obama has been unable to win sup­port for such a fee in Congress.

Frank Keat­ing, pres­i­dent and CEO of the Amer­i­can Bankers Asso­ci­a­tion, said such a fee would “directly reduce lend­ing capac­ity.” And Brian Gard­ner, a senior vice pres­i­dent at Keefe, Bruyette and Woods, a Wash­ing­ton invest­ment bank, called the pro­posed bank tax a “poi­son pill” for the legislation.

Admin­is­tra­tion offi­cials said Obama was open to other means of pay­ing for the pro­gram if the bank fee becomes too much of an obstacle.

Past admin­is­tra­tion ini­tia­tives have fallen short of expec­ta­tions. For instance, an ear­lier plan, the Home Afford­able Refi­nance Pro­gram, which allows bor­row­ers with loans backed by Fan­nie Mae and Fred­die Mac to refi­nance at lower rates, has helped about 1 mil­lion home­own­ers, well short of the 4 mil­lion to 5 mil­lion the admin­is­tra­tion had expected.

“I’ll be hon­est, the pro­grams we’ve put for­ward didn’t work at the scale we’d hoped,” Obama said. “Not as many peo­ple have taken advan­tage of it as we wanted.”

Obama also announced new indus­try stan­dards for mort­gage ser­vicers, a sort of “bill of rights” for bor­row­ers that would pro­tect them in their trans­ac­tions. Dur­ing his remarks, Obama bran­dished a sim­pler, three-page loan doc­u­ment to illus­trate the new standards.

Sep­a­rately, the Agri­cul­ture Depart­ment launched a pilot pro­gram in 19 states that could help rural home­own­ers refi­nance loans that were made or guar­an­teed by the department’s loan pro­gram, USDA Rural Devel­op­ment. The depart­ment esti­mates 235,000 home­own­ers would be eli­gi­ble for refinancing.

The admin­is­tra­tion will also under­take a pro­gram that would allow the sale of fore­closed homes by Fan­nie Mae to investors who would then offer the prop­er­ties for rental.

“As we know and a lot of fam­i­lies know,” Obama said, “that empty house or ‘for sale’ sign down the block can bring down the price of homes across the neighborhood.”

Posted by AP News on Feb 1 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.