President Barack Obama is proposing new legislation that would change the way houses are bought, sold and refinanced as an effort to stabilize the nation's ailing housing system.
One immediate goal of the so-called Homeowner Bill of Rights is to enable more borrowers to refinance, reduce their monthly payments or pay off their loans sooner, rebuilding equity lost in the housing crash.
The legislation announced Wednesday also would create a standardized system for mortgage applications and would expand bulk sales of government-owned foreclosure homes to investors, with the goal of decreasing the number of empty homes.
The bill would expand on a refinancing plan announced in October. That plan directed federal mortgage giants Fannie Mae and Freddie Mac to allow refinancing for mortgage-holders even if their homes are underwater by any amount. But the plan could not be offered to homeowners with mortgages privately held by banks. The new legislation would allow those homeowners to refinance as well, with the associated costs covered by a fee on major lenders.
Nearly 3.5 million U.S. homeowners with private mortgages, who owe more than their houses are now worth, could be eligible if the legislation passes.
However, the proposal is expected to meet strong opposition from Republicans. The program would cost between $5 billion and $10 billion.
"Millions of families who did the right and responsible thing, folks who shopped for a home that they could afford, secured a mortgage, made their payments each month -- they were hurt badly by the irresponsible actions of other people who weren't playing by the same rules," Obama said Wednesday.
"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," he said.
Political analysts see the new Obama plan as a direct response to Republican presidential candidate Mitt Romney's recent comments in Las Vegas.
Romney said the government shouldn't try to help homeowners by stopping foreclosures, instead suggesting letting the market hit bottom so investors buy the houses and rent them out until the housing turns around.
"This plan is a win-win for the president. He is clearly responding to the Romney statement that the best way to handle the housing crisis is ride it out," said Bruce Merrill, political-science analyst and pollster with the Phoenix-based Morrison Institute. "The battleground for the presidential race is the middle class, and there is clearly nothing more important to that group than homeownership."
Merrill said the housing issues shouldn't be a political one because helping homeowners is clearly what is good for the country.
House Speaker Republican John Boehner was critical of the plan Wednesday, saying none of the president's previous proposals to help the housing market has worked.
Many metro Phoenix homeowners have already started to apply for the refinancing program available for loans backed by Fannie and Freddie. Those refinanced loans are expected to be available in March. The program allows homeowners, no matter how underwater they are, to refinance to current low interest rates, as long as they haven't missed more than one payment in the past six months.
In the Phoenix area, where home values have plummeted 60 percent since the boom of 2006, almost half of all homeowners owe more than their homes are worth.
Details of Obama's proposed legislation include:
Allowing eligible, underwater homeowners with private mortgages to refinance.
Banks would potentially pay to finance part of the program.
Standardizing the loan application and borrowing process.
This is a move to cut down on mortgage fraud and protect borrowers from being overcharged or placed in risky loans they don't understand. The federal government's new consumer-protection group would oversee this process.
Allowing Fannie and Freddie to sell foreclosure homes in bulk.
The sales would run through a new auction process instead of happening one at a time. This would draw more big investors to buy the houses and turn them into rentals. The goal is for fewer foreclosure homes to sit vacant for long periods of time. However, such bulk purchases could drive down an area's home prices.
Separately, Obama said Wednesday that the Home Affordable Modification Program he announced in Mesa three years ago hasn't been nearly as successful as he hoped. That program encouraged lenders to modify loans, decreasing interest rates or extending the repayment terms to help struggling borrowers lower their payments.
But banks have made far fewer modifications than expected. So, the president said, the loan-modification program is being extended by a year -- it will expire at the end of 2013 -- and expanded to help more borrowers who didn't meet the income requirements before.
But most importantly, Fannie and Freddie will be given more incentives to begin reducing the principal on loans they own through loan modifications.
Fannie and Freddie have had a policy of not allowing principal reductions.
"I have no idea whether the legislation has a chance to pass," said Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University's W.P. Carey School and publisher of the Cromford Report.
"However, I would say that helping underwater homeowners, who are still current on their payments, refinance into lower interest-rate loans is the best thing the government could do for the market."
by Catherine Reagor - Feb. 1, 2012 11:20 PM The Republic | azcentral.com
Obama unveils plan on housing
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