Government announces new program to help ‘underwater’ homeowners
By Zachary A. Goldfarb and Scott Wilson,
President Obama on Monday responded to growing concerns about the nation’s battered housing market by unveiling a plan to help reduce the monthly mortgage payments of homeowners who owe more than their properties are worth.
As he met with distressed homeowners in Las Vegas, the foreclosure capital of the nation, Obama announced steps to allow “underwater” borrowers to refinance their mortgages at today’s ultra-low rates — near 4 percent.
The move comes amid a rapidly growing consensus that the nation’s moribund housing market is holding back the economic recovery. Home values are hovering at eight-year lows, and more than 10 million people are underwater, or owe more than their homes are worth.
“It’s a painful burden for middle-class families,” Obama said. “And it’s a drag on our economy.”
The administration’s proposal underscored the scope of the problem as well as the limits of public policy in addressing it. By reducing monthly payments, officials hope to free up cash for consumers to spend elsewhere.
Housing regulators say that 1 million borrowers might be eligible, but that is only one-tenth of the number of homeowners who need help. And while estimates cited by the administration suggest the average homeowner might save $2,500 per year, other projections from housing regulators were in the range of $312 per year, depending on upfront fees the borrower pays, which may include several thousand dollars in closing costs.
Obama touted the plan as part of what administration officials are calling a “We Can’t Wait” campaign to use the existing tools of the executive branch to boost the economy while Congress debates further legislation.
“We can’t wait for an increasingly dysfunctional Congress to do its job,” he said. “Where they won’t act, I will.”
White House officials acknowledge that the mortgage plan, like a program to reduce student loan costs to be announced Wednesday in Denver, won’t have the same economic impact as the president’s jobs plan. Republicans in Congress have blocked the jobs proposal, a $447 billion package of tax cuts and spending, including $15 billion for communities hard hit by foreclosure.
“These steps I’ve highlighted today will not solve all the problems in the housing market,” Obama said.
The mortgage plan represents the president’s latest initiative to address the housing crisis — a huge political vulnerability in states such as Nevada and Florida. The administration has resisted more aggressive approaches, such as using a large amount of taxpayer money to reduce debts.
An increasing number of economists, lawmakers, former administration officials and members of the Federal Reserve have been pushing for greater action.
On Monday, William C. Dudley, president of the Federal Reserve Bank of New York, recommended “an urgent effort to remove the obstacles that make it difficult for all borrowers to refinance at today’s low mortgage rates,” and going beyond that to “tackle other problems weighing on housing.”
Other senior Fed officials, including governor Daniel Tarullo, have argued for related policies to boost housing in recent days, potentially including a new round of purchases of bonds backed by mortgages, which would drive down rates.
The mortgage plan announced Monday was officially promulgated by the Federal Housing Finance Agency, an independent regulator that oversees the giant taxpayer-backed mortgage companies Fannie Mae and Freddie Mac, which own or guarantee half of all mortgage loans.
It officially revises an initiative, called the Home Affordable Refinance Program, that was unveiled at the start of the Obama administration and has fallen far short of expectations. Originally designed to help up to 5 million people, nearly three years later it has reached only 822,000, one-tenth of whom are significantly underwater.
“We know that there are many homeowners who are eligible to refinance under HARP, and those are the borrowers we want to reach,” said Edward J. DeMarco, acting director of the FHFA.
A number of barriers have stood in the way of the program’s success, including limiting it to borrowers who owe 25 percent more than their properties are worth, imposing upfront fees, and banks’ concerns that they might be held financially responsible if borrowers who refinance end up defaulting.
Under the new program, there’s no limit to how much a borrower can owe. Fees will be reduced. And banks that refinance loans will be largely cleared of liability.
Fees will be especially reduced if borrowers take on a mortgage with a duration of 20 years or less. Many homeowners have 30-year mortgages.
Only borrowers whose loans are owned or guaranteed by Fannie Mae and Freddie Mac will be eligible. In addition, borrowers must not have missed any payments in the past year and must have taken out their loans before June 1, 2009, though exactly when will depend on the lender.
The program is not expected to increase costs for taxpayers. The housing agency is expected to publish final details in mid-November, though some borrowers might not be able to enroll until the first quarter of next year.
Wilson reported from Las Vegas. Staff writer Neil Irwin in Washington contributed to this report.