President Obama is calling for an end to the red tape that's plagued homeowners looking to refinance, and big banks may be forced to foot the bill.
The new mortgage refinance plan the White House will send to Congress would cost the largest banks anywhere from $5 billion to $10 billion. The plan, known as the Blueprint for an America Built to Last, was first introduced in Obama's State of the Union speech. Among other things, the plan would allow private-label mortgages -- not guaranteed by government sponsored entities (GSEs) Fannie Mae and Freddie Mac -- to refinance through the Federal Housing Administration (HUD).
The plan that will go to Congress will give every responsible homeowner in America the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates.
"I want to be clear," President Obama said in a speech at Falls Church, Va., on Wednesday, "This plan, like the other actions we've taken, will not help the neighbors down the street who bought a house they couldn't afford, then walked away and left a foreclosed home behind."
"It's not designed for those who've acted irresponsibly, but it can help those who've acted responsibly. It's not going to help those who bought multiple homes just to speculate and flip the house and make a quick buck, but it can help those who've acted responsibly."
"What this plan will do is help millions of responsible homeowners who make their payments on time but find themselves trapped under falling home values or wrapped up in red tape."
To qualify, borrowers must have been current on their mortgage for the past six months and cannot have missed more than one payment in the past year.
HUD Secretary Shaun Donovan briefed the press on the full plan. Some key aspects include:
-- Broad base refinancing to help responsible borrowers save an average of $3,000 per year
- The introduction of a homeowner bill of rights, designed to insure buyers and lenders are playing by the same rules
-- A pilot sale of foreclosed properties to be transitioned into rental housing
-- A full year of forbearance, provided by major banks and the GSE's
-- Pursuing a joint investigation into mortgage origination and servicing abuses
-- Rehabilitating neighborhoods and reducing foreclosures, and expanding eligibility for HAMP
Frank Keating, President and CEO of the American Bankers Association, is less than thrilled. "The refinance proposal announced today, unfortunately, includes a tax on banks, which will directly reduce lending capacity and banks' ability to lend up to $100 billion."
"ABA is concerned that uncoordinated and ever-changing government programs, including those detailed today, create uncertainty in the market, increase the cost of homeownership and reduce credit availability needed to support homeownership and the economic recovery."
Keating and the ABA did promise to "continue to work with the administration and Congress to effectively address the nation's housing problems."
Ethan Handelman, Vice President for Policy and Advocacy at the National Housing Conference, believes it's a step in the right direction.
"President Obama's announcement today reinforces what we all know - we need coordinated action at many levels to restore housing markets, help struggling households and support a broader economic receovery."
But this is just the beginning, according to Handelman. "The proposals announced today are a step in the right direction. More can be done, using shared appreciation mortgages, structured short sales and other proven means to reduce outstanding debt, while improving returns to lenders and preventing painful and destabilizing foreclosures."
The National Association of Realtors (NAR) agrees: "We are pleased that the president released a plan to help America's struggling housing market and homeowners," said NAR President Moe Veissi. "Improving access to simple, low-cost refinancing and streamlining the process will help hardworking families who have stayed current on their mortgage payments and will go a long way to helping keep more families in their homes."
The White House also said Tuesday it would work with Congress to establish clearer guidelines for banks wanting to refinance borrowers who owe much more than their homes are worth.
If you're a homeowner and have questions about whether you qualify for a loan modification or refinance under the Home Affordable Refinance Program (HARP 2.), contact the Homeowner's HOPE hotline at 1-888-995-HOPE or go to MakingHomeAffordable.gov.