Obama Announces Mortgage Relief Plan To Deal With “Massive” Housing Problem

AP: Obama Proposal Would Create “An Annual Savings Of About $3,000 For The Average Borrower.” From a February 1 Associated Press article:

President Barack Obama called on Congress Wednesday to make it easier for millions of additional homeowners to refinance their mortgages at lower interest rates even if they owe more than their homes are worth. He conceded that his administration's housing plans so far have not lived up to their promise.

Calling the housing problem “massive in size and in scope,” Obama detailed a proposal he outlined in his State of the Union speech last week, tackling an issue of vital concern in states key to his re-election.

“This housing crisis struck right at the heart of what it means to be middle class in America: our homes,” Obama said, speaking at a northern Virginia community center.

Obama's proposal would give homeowners with privately held mortgages a shot at record low rates though a new government program, for an annual savings of about $3,000 for the average borrower.

The program is the latest administration effort to help homeowners in the face of a massive number of foreclosures and plunging house values that have left millions of borrowers owing more than their homes are worth. The administration plan aims to ease the way toward refinancing for borrowers, who despite good credit have been unable to take advantage of lower rates because they are underwater on their loans or because banks fear they will be left taking losses.

[...]

The administration estimates that 3.5 million borrowers with privately-held mortgages have high enough interest rates that they would have incentive to refinance under the new plan. That's in addition to 11 million borrowers who have Fannie- or Freddie-guaranteed loans who could be eligible for refinancing under the administration's proposed changes.

About 11 million Americans -- roughly 1 in 4 with a mortgage -- are underwater, according to CoreLogic, a real estate data firm.

Half of all U.S. mortgages -- about 30 million home loans -- are owned by nongovernment lenders.

The new administration plan would permit homeowners to refinance their mortgages into loans backed by the Federal Housing Administration. To qualify, borrowers with privately held mortgages would have to have no more than one delinquency in the six months preceding refinancing. Their loans would have to fall within the mortgage limits set by the FHA in their home counties. [Associated Press, 2/1/12]

Obama's Proposal Would Also Give Relief To Renters And Homeowners Looking For Work. From a White House fact sheet on Obama's plan:

• First Pilot Sale to Transition Foreclosed Property into Rental Housing to Help Stabilize Neighborhoods and Improve Home Prices: The FHFA, in conjunction with Treasury and HUD, is announcing a pilot sale of foreclosed properties to be transitioned into rental housing.

• Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work: Following the Administration's lead, major banks and the GSEs are now providing up to 12 months of forbearance to unemployed borrowers.

• Pursuing a Joint Investigation into Mortgage Origination and Servicing Abuses: This effort marshals new resources to investigate misconduct that contributed to the financial crisis under the leadership of federal and state co-chairs.

• Rehabilitating Neighborhoods and Reducing Foreclosures: In addition to the steps outlined above, the Administration is expanding eligibility for HAMP to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild. [WhiteHouse.gov, 2/1/12]

Right-Wing Media Suggest Obama's Plan Is A Charade Designed To Gain Votes

Malkin: Obama Is Re-Inflating The Housing Bubble To “Pander In An Election Year.” In a February 1 post on her blog, Michelle Malkin criticized President Obama for outlining his mortgage relief plan saying he was “re-inflating the housing bubble to pander in an election year.” From the post:

Ugh. We're back to this again. Yes, President Obama's re-inflating the housing bubble to pander in an election year. Foreclosure avoidance is now a civil right. Long-term consequences be damned.

Obama is outlining a proposal to allow millions more homeowners to refinance their mortgages at lower interest rates even if they owe more than their homes are worth. The White House says the average borrower could save about $3,000 annually.

His first mortgage-mod program was fraud-ridden and failed. So, of course, he's doubling down.

Obama has also promised today to send a homeowner “bill of rights” to Congress.

Maybe he should try abiding by the original one first.

***

Over the past several years, I've written extensively about the bipartisan housing entitlement culture and the death of the stigma of default. I repeat:

Property-value preservation is not a civil right.

The truth is: Nobody wants to swallow tough truths. They just want their candy. [Michelle Malkin, 2/1/12]

Limbaugh Falsely Claims Obama Will Refinance Everybody's Loans. “All You Have To Do Is Promise To Vote For Him.” From the February 1 edition of The Rush Limbaugh Show:

RUSH LIMBAUGH: So what do we do now, folks? That's the question. Everybody wants to know what do we do now? And what we do now is what we should be doing all along. I'll give you an example.

[...]

Obama's on TV this morning. He was in Falls Church, Virginia, doing a campaign speech. And in this appearance he announced yet another plan to bail out people who are underwater in their houses. This -- I don't know what this is, HARP 2, HARP 3. We alluded to this a few weeks ago where Obama was going to take people that were underwater and basically refinance their mortgages and have a monthly payment max out at something like six or seven hundred dollars. It's essentially, not quite forgive everybody's mortgage, but the effort was to make them think that was going to happen. That's the reason, one of the many reasons, Obama's out there saying, “Vote for me” today.

We predicted this a few weeks ago, and I think -- I'm sure I was the first to predict it. He's promising the government will refinance everybody's loans. No credit checks. No credit checks, no proof of anything. All you have to do is promise to vote for him. And that's implied. That is understood. I mean that's the whole point of it. So how do you fight this? What do we do? The only thing that has ever had a chance from the first days of this election, this campaign, has been to make it about Obama. Every day, in every which way possible, on issues, on Obama's record, on the things he can't defend. That's what needs to happen. That's what our chance is. Our team: not all that good. You know it, and I know it. They're just not. [Premiere Radio Networks, The Rush Limbaugh Show, 2/1/12]

• In Fact, Obama's Plan Is Aimed At Helping “Responsible Borrowers.” The White House fact-sheet on Obama's plan states that to be eligible for the refinancing program, homeowners must be “current on their mortgage,” “meet a minimum credit score,” “have a loan that is no larger than the current FHA [Federal Housing Administration] conforming loan limits in their area,” and be seeking to refinance “a single family, owner-occupied principal residence.” [WhiteHouse.gov, 2/1/12]

Hot Air's Morrissey: Obama Is “Vote Mining Among Underwater Middle-Class Homeowners.” From a February 1 post on the right-wing blog Hot Air by Ed Morrissey:

Jim Pethokoukis argued last week that this is Obama's attempt to buy some middle-class support. Republicans may stop it for its new fees on lenders, which will supposedly fund the costs, but certainly not the risks involved in this shell game, but that would also be useful for Obama in vote mining among underwater middle-class homeowners -- in fact, it might be more useful than passage. (Republicans could pass it with a provision approving the Keystone XL pipeline and dare Obama to veto it, too.) Its passage will only extend the problem for most of these homeowners, transfer risk from private lenders to taxpayers in many cases, and do nothing to create conditions in which demand rises for housing that would solve the valuation issue. [Hot Air, 2/1/12]

National Review Online: Obama's Mortgage Relief Plan Is To “Serve The Progressive Election-Year Narrative.” From a February 1 blog post by Sam Staley at National Review Online:

Sorting out the housing market will indeed be a long-term process. But the long-term solution is bringing the market back into balance after it was thrown out of whack in a not insignificant way by an “ownership society” myth, propagated and subsidized by both Republican and Democratic administrations. And the new housing-finance bureaucracy will struggle against its contradictory missions of making sure households don't buy houses they can't afford (reducing demand) and by making it easier and more straightforward to secure loans (increasing demand). Creating stability in the housing market won't be aided by the new bureaucracy created to rule over the mortgage industry, although it serves the progressive election-year narrative that it's the government that must ride in on a shining white horse to save the common person from the evil bankers. [National Review Online, 2/1/12]

Morrissey: Obama Is Trying “To Buy A Few Votes At The Expense Of Taxpayers And Banks.” From Morrissey's post on Hot Air on January 25:

Being underwater on a mortgage is a tough economic position, but no tougher than people who invest in other assets and end up having less value than what they invested. If homeowners find themselves in this position, they can keep paying the mortgage and eventually get above water on equity while continuing to live in their homes, which isn't ideal but certainly isn't an emergency that warrants picking the pockets of other taxpayers. It also won't do anything to prevent or minimize foreclosures, which is one of the actual problems in the housing market. This is nothing more than a bald attempt to buy a few votes at the expense of taxpayers and banks, and it will exacerbate the very problems it purports to address. Game-changer? More like an overtime period. [Hot Air, 1/25/12]

However, Economists Say Streamlined Mortgage Refinancing Would Benefit The Economy

Economist Mark Zandi: “There Is No Better Way To Quickly Buoy Hard-Pressed Homeowners Than Helping Them” Refinance At Current Rates. In a January 24 blog post on the Washington Post website, Mark Zandi, chief economist at Moody's Analytics, explained the economic benefits of President Obama's refinancing plan:

The president proposed to allow “every responsible homeowners” the chance to more easily refinance, a savings of about $3,000 annually.

There is no better way to quickly buoy hard-pressed homeowners than helping them take advantage of the currently record low fixed mortgage rates and significantly reduce their monthly mortgage payments.

[...]

Over 30 million homeowners are current on their mortgages and could profitably refinance at the current mortgage rate, which now average less than 4 percent for a 30-year fixed rate. The macroeconomic benefit could be significant. If, say, half refinance in the next six months, then this would save homeowners over $20 billion in mortgage payments this year and double that next year. Homeowners' extra cash will quickly find its way into the economy.

It is important to note that while homeowners will have more cash to spend, investors in these mortgages will receive less interest income. This dilutes the economic benefit of facilitating more refinancing, but only modestly. The biggest mortgage investors include the Federal Reserve (through quantitative easing), Fannie and Freddie, and foreign investors. All mortgage investors are probably a bit surprised they haven't already been refinanced out of their investments. [Washington Post, 1/24/12]

Economist Dean Baker: Obama's Mortgage Refinancing Plan Will “Benefit Communities And The Economy By Limiting The Blight Of Foreclosure And Giving Consumers More Money To Spend.” In an email to Media Matters, Dean Baker, co-director of the Center for Economic and Policy Research, stated:

[T]he main thrust of the Obama housing plan is just common sense. It is trying to set up a structure so that underwater homeowners will be able to refinance at low interest rates just like anyone else. This is the sort of support for the housing market that the government has always provided. This can mean the difference for millions of homeowners between keeping and losing their homes. It will also benefit communities and the economy by limiting the blight of foreclosure and giving consumers more money to spend. And, it will be done at very little cost to the government.

The system will not be perfect, but if perfection is the standard for an acceptable policy, then we would never do anything. [Email to Media Matters, 2/1/12]

Former Bush Economic Adviser: Streamlining Mortgage Refinancing “May Benefit Up To 30 Million Borrowers” And “Possible Savings Of $70 Billion Per Year In Lower Mortgage Payments.” Glenn Hubbard, former chairman of President George W. Bush's Council of Economic Advisors, outlined the current problems for borrowers under the status quo and explained the economic benefits of increased access to mortgage refinancing in a report titled “Streamlined Refinancings for up to 30 Million Borrowers”:

Frictions in the mortgage market have restricted the ability of tens of millions of borrowers from refinancing their mortgages, hampering monetary policy, slowing the economic recovery, and leading to excessive numbers of foreclosures. We propose a streamlined refinancing program that may benefit up to 30 million borrowers with government-backed mortgages, leading to possible savings of $70 billion per year in lower mortgage payments. [GlennHubbard.net, 9/1/11]

Executive Director Of UNC-Chapel Hill's Center For Community Capital: Obama Plan Would “Reduc[e] Losses For Investors ... And Increase Consumer Spending.” In an email to Media Matters, Janneke Ratcliffe, the executive director of the Center for Community Capital at the University of North Carolina at Chapel Hill, wrote:

There is growing evidence that these measures -- reduced monthly payments and relief from negative equity -- are effective at reducing foreclosures. Unfortunately, many responsible borrowers can't take advantage of today's low rates, and others can't qualify for relief from eroded house values, simply because their loan is owned by the wrong investor or serviced by the wrong servicer.

This plan would offer a refinancing option to millions of underwater homeowners who are current on privately-held mortgages but cannot refinance because of negative equity. The new program would make it easier for the one to two-and-a-half million homeowners that don't have Fannie or Freddie loans but are otherwise eligible for HARP refinancing to lower their monthly housing payments. The proposed changes to the HARP rules would increase competition among services and help more borrowers with Fannie- and Freddie-backed loans to take advantage of lower rates. And the revamped incentives for principal reduction through HAMP should help more of the 12 million underwater borrowers in the U.S. today, more than a quarter of which are already falling behind on their mortgage payments, restructure their loans to reflect current market values.

If implemented, with adequate takeup, these restructurings would yield substantial ripple effects in the form of easing downward pressure on house values, reducing losses for investors and taxpayer-backed mortgage entities, and increased consumer spending. [Email to Media Matters, 2/2/12]

CAP's Associate Director For Financial Markets Policy: Obama's Housing Plan Would “Put More Money In The Hands Of The Average Household.” David Min, the associate director for financial markets policy at the Center for American Progress, told Media Matters that if Obama's housing plan were to pass Congress, it “would definitely help the housing market.” Min also stated that the plan would “put more money in the hands of the average household by allowing them to refinance their mortgage rate into the lower rates available today” and “help struggling homeowners by providing them with principal reductions.” [Email to Media Matters, 2/2/12]

Yglesias: “Obama's Mass Refinancing Plan Could Boost The Economy.” In an article headlined “Obama's Mass Refinancing Plan Could Boost the Economy,” Matthew Yglesias, Slate's business and economics correspondent, explained how Obama's mortgage refinancing plan would benefit the economy if implemented:

Has the Obama administration finally hit on a job-creation idea that could be a game-changer? It's not clear how big an overall impact it would have, but the new proposal on mortgage refinancing could -- if implemented -- break a long-standing deadlock in the housing finance market and provide a significant boost to a “recovery winter” scenario.

One major channel through which the kind of low interest rates prevailing today normally help spur economic recovery is that people refinance their mortgages which increases the amount of money they have free to direct toward other things. Indeed, I myself am currently going through the process of refinancing my mortgage. It should end up saving me a few hundred bucks a month plus reducing the life of the loan by a year. Unfortunately, many people currently can't refinance their loans because their mortgage is “underwater.” What they owe is more than what the house is worth. This becomes a bit of a recursive issue. Unless economic activity (and therefore incomes) revive, it's difficult for house prices to do anything other than go down. But the low house prices are impeding refinancing--one of the main tools we rely on to boost economic activity. [Slate, 2/1/12]

Obama's Previous Mortgage Relief Plans Have Been Attacked By The Right-Wing Media In The Past

Fox's Tantaros: Obama's Mortgage Plan Is “Purely A Political Stunt.” In October 2011, Obama put forward a plan to assist homeowners who are underwater on their mortgages. The right-wing media went on the attack. For instance, during the October 25 edition of Fox News' America's Newsroom, co-host Bill Hemmer asked Fox News contributor Andrea Tantaros, “How vulnerable is this president on the issue of housing going into an election year?” Tantaros replied that Obama is “very vulnerable” and later said that “his plan is purely a political stunt.” [Fox News, America's Newsroom, 10/25/11, via Media Matters]

Fox Regular Morici: Obama's Plan Is “A Re-Election Ploy.” On the October 25 edition of Fox News' Fox & Friends, co-host Steve Doocy interviewed economist and professor Peter Morici about Obama's mortgage relief plan. Doocy said, “You know, the president is trying to not only keep people in their houses, but to try to keep him in the White House as well with this.” Morici agreed, saying, “This is really a re-election ploy, because it's going to create new problems down the road.” [Fox News, Fox & Friends, 10/25/11, via Media Matters]

Krauthammer: "[Obama] Knows That This Is A Farce." On the October 24 edition of Fox News' Special Report, Fox News contributor Charles Krauthammer said of Obama's plan, “But Obama is not here about fixing stuff. This is all about framing the debate. This is an appearance of motion. ... He knows that this is a farce.” Fox Nation later hyped Krauthammer's commentary in an October 24 post. [Fox News, Special Report, 10/24/11, via Fox Nation]

Dobbs: Obama's New Plan To Help Homeowners Is “Offering Up ... Bribes” So He Can “Get Re-Elected.” On the October 24 edition of Fox News' America Live, host Megyn Kelly discussed Obama's plan with Fox Business host Lou Dobbs. Dobbs attacked Obama's plan, saying it was “one of the most irresponsible initiatives [Obama] could take” and later claiming that Obama is “offering up billions -- hundreds of billions of dollars in bribes” so that he can “get re-elected.” [Fox News, America Live, 10/24/11, via Media Matters]