- The Washington Times - Wednesday, February 1, 2012

Only three months after proposing a mortgage-relief plan, President Obama went back to the drawing board Wednesday with another proposal, paid for by a new tax on big banks, that would allow millions of “underwater” borrowers to refinance home loans.

“This housing crisis struck right at the heart of what it means to be middle class in America: our homes,” Mr. Obama said at a community center in Falls Church, where he unveiled the plan. “We need to do everything in our power to repair the damage and make responsible families whole again.”

The president’s latest plan, which he outlined in his State of the Union address last week, would allow underwater homeowners - those who owe more than their homes are worth - to refinance their mortgages into loans backed by the Federal Housing Administration (FHA). Borrowers could not have more than one late payment in the past six months, and banks would be required to reduce mortgage balances for homeowners who owe more than 140 percent of their home’s value.

The administration says about 3.5 million borrowers would likely qualify for the plan. While the effort last year applied to homes financed through mortgage giants Fannie Mae and Freddie Mac, this latest proposal would help borrowers with private-sector bank loans.

The president has tried several times to jump-start the housing market, including an effort announced in October to help homeowners take advantage of historically low mortgage rates. To date, none of the programs has made a significant impact in a market in which about 11 million homeowners owe more than their homes are worth.

The Republican National Committee issued a statement saying the plan “joins the ‘alphabet soup’ of housing proposals enacted by Obama which have failed to keep millions of Americans in their homes.”

Mr. Obama said the plan he launched two years ago has helped nearly 1 million people save an average of $300 on their monthly payments. But he added, “I’ll be honest - it didn’t work at the scale we’d hoped. Too many families haven’t been able to take advantage of the low rates because falling prices locked them out of the market.”

The proposal would cost between $5 billion and $10 billion, and the administration would pay for it with a tax on large banks that Congress has rejected twice in the past two years, including once when Democrats controlled the House and Senate.

Some housing industry analysts say the proposal won’t turn around a market that has been ailing for more than four years.

“The housing market suffers from two problems: oversupply and over-leverage,” said Edward J. Pinto, an analyst at the conservative American Enterprise Institute. “What the president’s proposed does very little on either of those counts.”

Mr. Pinto said the broad-scale refinancing would have a negligible impact on stimulating a $14 trillion economy.

“It’s not fresh money,” he said. “It comes from somebody else’s pocket. That money is being transferred from the investor to the debtor.”

He said that the focus for improving the housing market should be to create jobs. But he added, “We’ve done precious little, relatively, on the jobs front.”

Mr. Obama blamed the foreclosure crisis largely on an unscrupulous home-loan industry and reckless investors.

“Millions of families who did the right and responsible thing - who shopped for a home, secured a mortgage and made their payments each month - were hurt badly by the irresponsible actions of others,” Mr. Obama said. “By lenders who sold loans to people who couldn’t afford the mortgages; buyers who knew they couldn’t afford them; and banks that packaged the mortgages up and traded them to reap phantom profits. It was wrong. It triggered the worst economic crisis of our lifetimes.”

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