More mortgage relief from White House, Congressional OK doubtful
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More mortgage relief from the White House — but congressional OK doubtful
President Barack Obama on Wednesday announced a sweeping plan to help underwater homeowners refinance into lower-interest loans, but funding for the proposal must be approved by a combative Congress, lowering the possibility that it will help anyone soon.
The refinancing program would be a major source of relief for the many Bay Area homeowners whose loans are for amounts higher than the value of the home but are not held by two government-sponsored entities — Fannie Mae and Freddie Mac.
Operated by the Federal Housing Administration, the plan would allow underwater homeowners to refinance into cheaper federally insured loans up to $729,750 — the FHA’s conforming loan limit in the Bay Area. Borrowers with good credit who are current on their loan payments are eligible.
Since a highly partisan Congress must approve $5 billion to $10 billion in funding, housing experts were skeptical about it passing this year, but they praised its objectives.
“We’re supporting it because it will help to stabilize an already difficult housing market,” said LeFrancis Arnold, president of the California Association of Realtors.
“It is a big deal for homeowners here who can’t qualify under normal criteria,” said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley. “A lot of people would take advantage of this if it were up and running.”
The measure also streamlines the process of refinancing an underwater mortgage, eliminating the need for an appraisal or submitting a new tax return.
Obama announced the plan in a speech in Fairfax, Va., saying it would save an average $3,000 a year per borrower. “No more red tape,” Obama said. “No more runaround from the banks. And a small fee on the largest financial institutions will make sure that it doesn’t add to the deficit.”
The plan will help “millions of responsible homeowners,” Obama continued. “If you’re ineligible for refinancing just because you’re underwater on your mortgage, this plan changes that. You’ll be able to refinance at a lower rate, saving hundreds of dollars a month you can put back in your pocket.”
To qualify, borrowers must be current on their mortgage, have a minimum credit score of 580, and they must be refinancing a loan on a single-family, owner-occupied principal residence. Lenders only need to confirm that the borrower is employed. Loans that are more than 140 percent of the home value probably would not qualify until banks wrote down part of the balance.
Under the administration’s Home Affordable Refinance Program, more than 900,000 underwater homeowners whose loans are held by Fannie Mae or Freddie Mac already have refinanced their mortgages. That is fewer than the administration hoped, and a revision to the program was announced recently that removed limits on the size of the loan relative to the value of the house.
“There are so many people that could be helped” by the new plan, said Cathy Warshawsky, a San Jose mortgage broker and officer in the California Association of Mortgage Professionals. “They are people who are making lots and lots of money, who purchased homes that are now upside-down. They are making enough money to be able to pay their mortgages, but nobody will refinance them. If we drop their mortgage payment, they are going to go out there and spend money, buy cars and washing machines.”
Mortgage market and housing analysts were doubtful that the plan will become a reality this year.
“The goal of the program is good,” said Kevin Stein of the California Reinvestment Coalition who is also concerned about Congress. “Whether they can reach the goal is another question.”
Dustin Hobbs of the California Mortgage Bankers Association called the plan “a positive sign,” but added that “the proposal is a long way from being a reality, so at this point it’s tough to say what the end result would be.”
The proposal to pay for the program with a tax on large banks will likely be dead on arrival at a fiercely partisan Congress in an election year, noted Ed Mills, a financial policy analyst with FBR Capital Markets in Washington, D.C.
“It sounds great, but in an election year, unfortunately, it has little to no chance of ever coming into reality,” Mills said. “This is likely to be another mortgage program that comes out with great fanfare, overpromises and underdelivers.”
Underscoring that prediction, a leading House Republican released a statement blasting the plan.
Rep. Scott Garrett, R-N.J., head of the House finance subcommittee that oversees Fannie Mae and Freddie Mac, called the plan the “latest salvo of the federal government’s unprecedented expansion into our nation’s housing market.”
The White House also announced several other measures to shore up the housing market, several of which were announced by Obama in his State of the Union address. The measures include a “homeowner bill of rights” to protect borrowers from hidden fees and penalties and provide an appeal process for families fighting “inappropriate” foreclosure; a pilot program to transition foreclosures into rental housing and a program to rehabilitate neighborhoods hit by foreclosures.
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