White House proposes new mortgage relief program
February 03, 2012
The White House released details Wednesday on the new mortgage relief program that President Obama announced in his State of the Union address. The new program aims to help more homeowners take advantage of historically low mortgage rates.
Under the proposed plan, which is officially known as the Blueprint for an America Built to Last, homeowners who are "underwater" with negative equity will be able to refinance so long as they are current on their mortgage payments and meet certain eligibility requirements. The administration estimates the proposal could save homeowners an average of $3,000 per year.
Expanding access to low mortgage rates
While this isn't the first time the White House has proposed a mortgage relief program, it is unique in that it will apply to all homeowners. The 2009 Making Home Affordable Program was also intended to help underwater homeowners refinance, but only servicers for loans owned or guaranteed by Fannie Mae or Freddie Mac were required to participate.
The new proposal would create a streamlined refinancing process that would be open to all homeowners. Borrowers with loans not owned or guaranteed by a federal program would be eligible to refinance so long as the following criteria is met:
- Borrowers must be current on their mortgage. They cannot have missed more than one payment in the six months prior to refinancing.
- Borrowers must have a credit score of at least 580.
- The loan size must meet FHA conforming loan limits for their geographic area. This limit varies based upon the median price of homes in the area.
- The loan must be for a single family, owner-occupied principal residence.
In addition to the refinancing plan for non-government backed mortgages, Obama's proposal would also create a streamlined refinancing process for those with loans owned or guaranteed by Freddie Mac and Fannie Mae.
Another component of the initiative would encourage homeowners to refinance for a shorter term and use their savings to pay down the loan principal and rebuild equity. Homeowners who agreed to do so could have their closing costs paid for by the government.
Paying for the plan
According to the White House, the refinancing plan will cost between $5 billion and $10 billion, depending on the final program details and the number of homeowners participating. However, this cost is expected to be absorbed by a fee to be imposed on financial institutions. The Financial Crisis Responsibility Fee would be assessed on large institutions based upon their size and the level of risk associated with their activities.
The White House proposal must first be passed by Congress before it can be implemented. Members of Congress rejected a previous attempt to impose fees on large banks, and some analysts expect the new refinancing program may be met with resistance as well.