President Barack Obama announced a fresh bid Wednesday to revive the housing market by letting millions of homeowners refinance their mortgages, presenting a plan that is likely to encounter congressional opposition.
The program aims to help borrowers who are current on their mortgages refinance into lower-interest federally insured loans. Borrowers would qualify even if they owe more than their homes are worth or if they have trouble securing a new mortgage from a private lender.
Mr. Obama said the plan, first touted in his State of the Union address, would help some homeowners save $3,000 a year by tapping lower interest rates.
He appeared sensitive to any appearance that he was helping people who borrowed too much, repeatedly emphasizing that his initiative would aid "responsible" homeowners.
"This plan, like the other actions we've taken, will 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.
It's not designed for those who've acted irresponsibly, but it can help those who've acted responsibly," he said at a community center in Fairfax, Va., outside of Washington.
Ahead of the announcement, administration officials said they hoped the emphasis on aid for responsible homeowners would give the plan a better shot in Congress.
The proposal is already prompting debate over how aggressively the government should intervene in the flagging housing market.
Also at issue: how to fund the effort's estimated $5 billion to $10 billion price tag. The White House is proposing a tax on large banks—something Republicans have said they oppose.
A senior administration official declined to say whether the White House would consider alternate funding options.
Mr. Obama also announced other housing initiatives the White House can implement without congressional approval. He unveiled an auction process for bulk sales of foreclosed homes that federally controlled mortgage entities would sell to investors who maintain them as rentals.
And he announced a borrower "bill of rights" that would include a new, simpler form to help borrowers understand the terms of their loans.
The centerpiece of the announcement was the refinancing push, which complements an existing program that makes it easier for homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance.
The new initiative would extend that opportunity to roughly one-third of all mortgages that aren't backed by federal entities and instead are owned by banks or were bundled by private firms that sold them off to investors as mortgage-backed securities. The Federal Housing Administration would instead guarantee the new loan.
To qualify, homeowners would have to be current on their last six mortgage payments and have no more than one delinquency in the previous six months.
The refinancing effort would represent another major expansion of the federal government's efforts to backstop mortgage markets.
Some critics of mass refinancings argue that such efforts just transfer money to homeowners from bondholders, who lose money when higher-yielding bonds pay off early.
The latest plan could raise concerns that the government is essentially doubling down on a housing recovery by allowing federal entities to take on more risk.
Rep. Scott Garrett (R., N.J.), who heads a House subcommittee on capital markets, last week said the bank tax was "dead on arrival." The levy never moved through the Democratic-run Congress when first proposed two years ago to offset costs from the 2008 financial rescues.
The bank fee—or any revenue source—would be needed to cover the costs of the program because the FHA is already dipping into its reserves and itself could require taxpayer money in coming years.
At the end of September, the FHA guaranteed nearly $1.1 trillion in mortgages but had just $1.2 billion as a cushion for unanticipated losses.
Using the FHA to refinance more borrowers "would be imprudent considering the way the balance sheet looks right now," Mr. Garrett said. "It's not a viable idea."
The FHA, along with Fannie and Freddie, has been responsible for backing nine in 10 new loans over the past three years.
Administration officials pointed to some bipartisan support for the ideas in this plan, but the proposal still faces a tough road in Congress, where Republicans have resisted a long list of Mr. Obama's ideas.
House Speaker John Boehner (R., Ohio) was skeptical. "We've done this at least four times, where there's some new government program to help homeowners who have trouble with their mortgages.
None of these programs have worked," he said. "And I don't know why anyone would think that this next idea is going to work."
He added that the programs "delay the clearing of the market," and postpone the time when it will become clear "where the prices really are."
Others worried about the pressure the plan would put on the FHA. "While we have not yet received any details on the administration's proposal, I have concerns with any plan that increases taxpayer exposure to mortgage losses, particularly by massively growing the FHA's balance sheet with loans that are already underwater," said Sen. Bob Corker (R., Tenn), a member of the Senate Banking Committee.
But others welcomed the plan, saying government should be doing more.
"It would greatly enhance and stabilize the market," said Rep. Dennis Cardoza (D., Calif.), who has repeatedly called on the White House to take action along these lines. "If a hurricane had destroyed a third of the homes, people would have been aghast.
But it feels like there's been a tornado or some natural calamity and yet nobody's come with any assistance that's made any difference."
Senior administration officials said the plan would make refinancing possible for an estimated 3.5 million homeowners. That is on top of 11 million borrowers who could benefit from the existing program for borrowers with Fannie- and Freddie-backed loans.
The president will also endorse technical changes to those initiatives that the firms' federal regulator has resisted. Officials declined to estimate how many people would choose to participate.
While mortgage rates have tumbled to their lowest levels on record, many borrowers haven't been able to qualify because they owe more than their homes are worth or they have lost income. Others have concluded that refinancing isn't worth the upfront cost.
The plan would be open to owner occupants and borrowers with a minimum credit score of 580. Loans that exceed FHA limits, which range from $271,050 to $729,750, depending on local home prices, wouldn't be eligible. To simplify the application process, lenders would have to confirm employment but little else.
Homeowners who are deeply underwater would be eligible, but officials said they would work with Congress to determine a potential ceiling. For example, lenders could have to write down the loan balance to 140% of the value of the home for deeply underwater loans.
The administration plan would encourage homeowners to use the savings from the lower interest rate to pay down the principal on their loans, rather than reducing their monthly payments. The government would pay closing costs for those who agree, officials said.
The weak housing market continues to weigh on the fragile economic recovery. On Tuesday, the S&P/Case-Shiller index showed home prices hit a new low in November and were 3.7% below levels of one year ago.
Federal Reserve Chairman Ben Bernanke and senior policy makers at the Fed have stepped up calls for more action.
Key electoral battlegrounds, including Florida, Nevada, Arizona and Ohio, are home to many of the nation's weakest property markets. Already, Republican presidential contender Mitt Romney has campaigned in Florida by hammering Mr. Obama for making the housing downturn worse.
In pure political terms, the plan—even if it dies in Congress—could allow Mr. Obama to deflect criticism that he has been "flatfooted on housing" while arguing to the broader electorate that "the Republicans are the party standing between you and a lower rate on your mortgage," said Jeb Mason, a Treasury-policy adviser in the Bush administration who now works for the Cypress Group, a financial-services consultancy.
Mr. Romney said in October that the government should not try to stop foreclosures but let the housing market "hit the bottom," a comment Democrats hope to exploit if he is the Republican nominee.
Mr. Obama appeared to reference that comment when he said, "It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom."
Separately, the federal regulator for Fannie and Freddie announced Wednesday that Fannie Mae will solicit bids for bulk sales of foreclosed properties.
According to people familiar with the matter, it will sell properties in geographic parcels that could include Southern California, Atlanta, Las Vegas, Chicago, Phoenix and parts of Florida.
wsj.com
The program aims to help borrowers who are current on their mortgages refinance into lower-interest federally insured loans. Borrowers would qualify even if they owe more than their homes are worth or if they have trouble securing a new mortgage from a private lender.
Mr. Obama said the plan, first touted in his State of the Union address, would help some homeowners save $3,000 a year by tapping lower interest rates.
He appeared sensitive to any appearance that he was helping people who borrowed too much, repeatedly emphasizing that his initiative would aid "responsible" homeowners.
"This plan, like the other actions we've taken, will 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.
It's not designed for those who've acted irresponsibly, but it can help those who've acted responsibly," he said at a community center in Fairfax, Va., outside of Washington.
Ahead of the announcement, administration officials said they hoped the emphasis on aid for responsible homeowners would give the plan a better shot in Congress.
The proposal is already prompting debate over how aggressively the government should intervene in the flagging housing market.
Also at issue: how to fund the effort's estimated $5 billion to $10 billion price tag. The White House is proposing a tax on large banks—something Republicans have said they oppose.
A senior administration official declined to say whether the White House would consider alternate funding options.
Mr. Obama also announced other housing initiatives the White House can implement without congressional approval. He unveiled an auction process for bulk sales of foreclosed homes that federally controlled mortgage entities would sell to investors who maintain them as rentals.
And he announced a borrower "bill of rights" that would include a new, simpler form to help borrowers understand the terms of their loans.
The centerpiece of the announcement was the refinancing push, which complements an existing program that makes it easier for homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance.
The new initiative would extend that opportunity to roughly one-third of all mortgages that aren't backed by federal entities and instead are owned by banks or were bundled by private firms that sold them off to investors as mortgage-backed securities. The Federal Housing Administration would instead guarantee the new loan.
To qualify, homeowners would have to be current on their last six mortgage payments and have no more than one delinquency in the previous six months.
The refinancing effort would represent another major expansion of the federal government's efforts to backstop mortgage markets.
Some critics of mass refinancings argue that such efforts just transfer money to homeowners from bondholders, who lose money when higher-yielding bonds pay off early.
The latest plan could raise concerns that the government is essentially doubling down on a housing recovery by allowing federal entities to take on more risk.
Rep. Scott Garrett (R., N.J.), who heads a House subcommittee on capital markets, last week said the bank tax was "dead on arrival." The levy never moved through the Democratic-run Congress when first proposed two years ago to offset costs from the 2008 financial rescues.
The bank fee—or any revenue source—would be needed to cover the costs of the program because the FHA is already dipping into its reserves and itself could require taxpayer money in coming years.
At the end of September, the FHA guaranteed nearly $1.1 trillion in mortgages but had just $1.2 billion as a cushion for unanticipated losses.
Using the FHA to refinance more borrowers "would be imprudent considering the way the balance sheet looks right now," Mr. Garrett said. "It's not a viable idea."
The FHA, along with Fannie and Freddie, has been responsible for backing nine in 10 new loans over the past three years.
Administration officials pointed to some bipartisan support for the ideas in this plan, but the proposal still faces a tough road in Congress, where Republicans have resisted a long list of Mr. Obama's ideas.
House Speaker John Boehner (R., Ohio) was skeptical. "We've done this at least four times, where there's some new government program to help homeowners who have trouble with their mortgages.
None of these programs have worked," he said. "And I don't know why anyone would think that this next idea is going to work."
He added that the programs "delay the clearing of the market," and postpone the time when it will become clear "where the prices really are."
Others worried about the pressure the plan would put on the FHA. "While we have not yet received any details on the administration's proposal, I have concerns with any plan that increases taxpayer exposure to mortgage losses, particularly by massively growing the FHA's balance sheet with loans that are already underwater," said Sen. Bob Corker (R., Tenn), a member of the Senate Banking Committee.
But others welcomed the plan, saying government should be doing more.
"It would greatly enhance and stabilize the market," said Rep. Dennis Cardoza (D., Calif.), who has repeatedly called on the White House to take action along these lines. "If a hurricane had destroyed a third of the homes, people would have been aghast.
But it feels like there's been a tornado or some natural calamity and yet nobody's come with any assistance that's made any difference."
Senior administration officials said the plan would make refinancing possible for an estimated 3.5 million homeowners. That is on top of 11 million borrowers who could benefit from the existing program for borrowers with Fannie- and Freddie-backed loans.
The president will also endorse technical changes to those initiatives that the firms' federal regulator has resisted. Officials declined to estimate how many people would choose to participate.
While mortgage rates have tumbled to their lowest levels on record, many borrowers haven't been able to qualify because they owe more than their homes are worth or they have lost income. Others have concluded that refinancing isn't worth the upfront cost.
The plan would be open to owner occupants and borrowers with a minimum credit score of 580. Loans that exceed FHA limits, which range from $271,050 to $729,750, depending on local home prices, wouldn't be eligible. To simplify the application process, lenders would have to confirm employment but little else.
Homeowners who are deeply underwater would be eligible, but officials said they would work with Congress to determine a potential ceiling. For example, lenders could have to write down the loan balance to 140% of the value of the home for deeply underwater loans.
The administration plan would encourage homeowners to use the savings from the lower interest rate to pay down the principal on their loans, rather than reducing their monthly payments. The government would pay closing costs for those who agree, officials said.
The weak housing market continues to weigh on the fragile economic recovery. On Tuesday, the S&P/Case-Shiller index showed home prices hit a new low in November and were 3.7% below levels of one year ago.
Federal Reserve Chairman Ben Bernanke and senior policy makers at the Fed have stepped up calls for more action.
Key electoral battlegrounds, including Florida, Nevada, Arizona and Ohio, are home to many of the nation's weakest property markets. Already, Republican presidential contender Mitt Romney has campaigned in Florida by hammering Mr. Obama for making the housing downturn worse.
In pure political terms, the plan—even if it dies in Congress—could allow Mr. Obama to deflect criticism that he has been "flatfooted on housing" while arguing to the broader electorate that "the Republicans are the party standing between you and a lower rate on your mortgage," said Jeb Mason, a Treasury-policy adviser in the Bush administration who now works for the Cypress Group, a financial-services consultancy.
Mr. Romney said in October that the government should not try to stop foreclosures but let the housing market "hit the bottom," a comment Democrats hope to exploit if he is the Republican nominee.
Mr. Obama appeared to reference that comment when he said, "It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom."
Separately, the federal regulator for Fannie and Freddie announced Wednesday that Fannie Mae will solicit bids for bulk sales of foreclosed properties.
According to people familiar with the matter, it will sell properties in geographic parcels that could include Southern California, Atlanta, Las Vegas, Chicago, Phoenix and parts of Florida.
wsj.com
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