In his State of the Union address, President Obama laid out a plan to help responsible borrowers and support a housing market recovery.
Key aspects of the president’s plan include:
- Broad-based refinancing: The president’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates.
- Homeowner Bill of Rights: The president is putting forward a single set of standards to make sure borrowers and lenders play by the same rules, including: Access to a simple mortgage disclosure form, so borrowers understand the loans they are taking out; full disclosure of fees and penalties; guidelines to prevent conflicts of interest that end up hurting homeowners; support to keep responsible families in their homes and out of foreclosure; and protection for families against inappropriate foreclosure, including right of appeal.
- First pilot sale to transition foreclosed property into rental housing: The FHFA, in conjunction with Treasury and HUD, is announcing a pilot sale of foreclosed properties to be transitioned into rental housing.
- Providing 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. The above information is taken from the California Association of Realtors’ (C.A.R.) weekly e-newsletter covering vital industry information including economic reports, legislative developments, and new real estate products and services.
Sounds like a good and promising plan to me. But the mortgage market and housing analysts were doubtful that the plan will become a reality this year.
“The goal of the program is good,” said Kevin Stein of the California Reinvestment Coalition. “Whether they can reach the goal is another question.”
Dustin Hobbs of the California Mortgage Bankers Association called the plan “a positive sign,” but unsure what the result would be.
Ed Mills, a financial policy analyst with FBR Capital Markets in Washington, D.C., noted that the proposal to pay for the program with a tax on large banks will likely be dead on arrival at a fiercely partisan Congress in an election year.
Rep. Scott Garrett, R-N.J., head of the House finance subcommittee that overseas Fannie Mae and Freddie Mac, blasted the plan, calling it the “latest salvo of the federal government’s unprecedented expansion into our nation’s housing market.”
Last fall, President Obama made a controversial move by bypassing Congress and moving forward with an executive order to fix housing by issuing the second phase of the Home Affordable Refinance Program (HARP) which eliminates fees and appraisal process, along with other adjustments.
Last month, the Obama administration announced that they are taking a similar approach seeking to improve the Home Affordable Mortgage Program (HAMP) by expanding eligibility to mortgage holders with higher debt loads and the new phase of HAMP triples the incentives it pays banks that reduce principal on loans, a move the administration has been strongly advocating.
The Federal Housing Finance Agency (FHFA), the conservator of Fannie Mae and Freddie Mac told lawmakers in a letter that forcing the two to write down the principal on underwater home loans would require more than $100 billion in new taxpayer funds.
Despite that, the administration also announced this week that it would offer incentives to Fannie and Freddie to reduce principal on loans which previously was only offered to private entities and banks.
The new changes would not require new funds, as HAMP has been funded by billions of taxpayer dollars, more than half of which has not been spent. The housing plan gives mortgage servicers incentives to modify mortgage loans by cutting interest rates, deferring a portion of the loan or extending other terms. The administration launched the program with the promise that four million homeowners would be helped and be able to stay in their home. But nowhere near that number of homeowners were helped. Perhaps in hopes that the four million mark is still attainable, the program has been extended an extra year to end in 2013.
In the meantime, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds President Obama’s proposal to help millions of underwater homeowners who are current on their mortgage to refinance, but opposes the implementation of FHFA pilot program to transition Real Estate Owned (REO) properties into rental housing. Given the low REO inventory in California and the high demand even in the state’s hardest hit areas, this plan may not be as beneficial here.
I am sure a lot of tweaking is still in order.