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.”
Under the administration’s plan, borrowers would be eligible if they have a minimum credit score of 580 and a loan within the FHA’s limits of $271,050 to $729,750. The government would pay closing costs for homeowners who use their savings to pay down their loan principal rather than reduce their monthly payments.
The president acknowledged that government cannot solve the problems in the housing industry, but he said his administration is determined to help.
“It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom,” Mr. Obama said. “I refuse to accept that, and so do the American people.”
Mr. Obama’s visit to Northern Virginia was his third in the past six months. His campaign team views the state as a must-win battleground, and plans to open a fourth Virginia office this weekend. In 2008, Mr. Obama became the first Democratic presidential candidate since 1964 to carry Virginia.
While the president was laying out his refinancing plan, the Republican presidential candidates were shifting their campaigns from Florida to Nevada, the states hit hardest from the housing crisis. Both states will be fiercely contested in the fall election.
Mr. Obama got a big cheer from the audience when he departed from his prepared remarks to point out that his Consumer Financial Protection Bureau “is finally running at full steam.” He installed the agency’s head, Richard Cordray, last month in a recess appointment, prompting Republican lawmakers who had blocked the nomination to argue that the move was unconstitutional because the Senate wasn’t really in recess at the time.