At the start of his term, Obama promised that up to 9 million homeowners at risk of foreclosure would receive aid through a broad refinance program or a mortgage modification program run through the Treasury Department. In the three years since then, fewer than 2 million have been helped.
“I’ll be honest — it didn’t work at the scale we’d hoped,” Obama said Wednesday. “Mortgage rates are as low as they’ve been in half a century, and when that happens, homeowners usually flock to refinance their mortgages. But this time, too many families haven’t been able to take advantage of the low rates.”
As part of his new plan, Obama also proposed encouraging borrowers who refinance their mortgages to take on shorter-term loans and direct the savings to rebuilding equity in their homes. As an incentive, the administration is willing to have the government pay the closing costs associated with refinancing — usually about $3,000.
The number of borrowers who might be eligible for the program is large: 3.5 million who do not have federally backed mortgages and 11 million who hold government-backed loans, according to administration officials. But previous estimates suggest that just a fraction of that population would take part in the program.
Christopher Mayer, an economics professor at Columbia who has gained attention for his mortgage proposals, said he’s “a big fan of what the president has proposed for refinancing government-guaranteed mortgages. . . . The program really says for the first time everybody is eligible.”
But he raised concerns about the new FHA program that would refinance mortgages not already owned by the government. “I think it is taking a lot of risk for the government, and I think taxpayers have a legitimate question of whether they have already taken on a lot of risk,” he said.
Other steps announced Wednesday include a decision by the Treasury Department to triple incentives paid to banks in exchange for forgiving part of the debts owed by homeowners, as well as a program run by the Federal Housing Finance Agency to sell batches of foreclosed properties to investors, who would rent them out. That could restart housing activity and put a floor under housing prices in struggling communities.
Staff writer Brady Dennis contributed to this article.
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