As Republicans move on from the Florida primary to Nevada, President Obama tackles the biggest issue affecting both states - the housing bubble. While visiting a Northern Virginia community center Wednesday, Obama outlined details of a new housing plan unveiled at the State of the Union which he hopes will finally get more people buying and refinancing homes. The plan is designed to make it easier for millions of homeowners to refinance their mortgages at lower rates to combat foreclosures or help those unable to get loans when they owe more than their homes are worth. The key element of the plan is the lowering of interest rates for an annual savings of about $3,000 for the average borrower.
The administration proposes expanding the Home Affordable Refinance Program that over 1 million borrowers with government-affiliated loans from Fannie Mae or Freddie Mac have used to refinance at lower rates. The new plan would allow any borrower with a privately held mortgage who owes more than 140 percent of the value of their homes, plus have no more than one delinquent month in a six month period and have mortgages within the limits set by the FHA, to have a reduced mortgage balance.
Obama faces major hurdles in the passage of his plan in Congress as it is estimated to cost between $5 to $10 billion depending on the number of participants, and the proposed method of payment is through a fee on large banks. There are approximately 3.5 million borrowers paying an interest rate high enough that this would be an incentive to refinance and about 11 million borrowers with loans guaranteed by Freddie and Fannie who could be eligible under this program to refinance. Furthermore, roughly one in four mortgage holders are underwater.
Other areas the plan tackles include a new "bill of rights" for borrowers and a program to allow Fannie Mae to sell foreclosed homes in bulk for the purpose of increasing the amount of rental properties on the market.
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