US PRESIDENT Barack Obama yesterday announced a plan to enable millions of Americans to refinance “under water” mortgages through simplified loan criteria. He also elaborated on his “Project Rebuild” which would see the revamping and renovation of millions of homes left vacant by foreclosures.
Mr Obama travelled to Las Vegas, called the “ground zero of the housing bust”, to explain how he will relaunch the Home Affordable Refinance Programme (Harp), which was introduced in 2009 to helpborrowers with little or no equity in their homes to lower monthly mortgage payments. Because of barriers imposed by banks and government mortgage agencies, fewer than one fifth of the five million people who were meant to benefit from Harp qualified for refinancing.
The Harp relaunch was the first of a series comprising Mr Obama’s “We can’t wait” initiative. Republican lawmakers have blocked attempts to pass Mr Obama’s jobs Bill in Congress, so he is flexing his executive powers instead.
“This is not a substitute for the American Jobs Act,” White House communications director Dan Pfeiffer said yesterday. “Where Congress won’t act, this president will.” Mr Obama will announce the second step of “We can’t wait” – a plan to relieve the burden of student loans on young people – in California today. Mr Pfeiffer said the president would present an initiative each week until year’s end.
The stagnant housing market is the albatross that is dragging down the US economy. Eleven million Americans – nearly a quarter of all homeowners – now owe more money on mortgages than their homes are worth. Even those who are not “under water” are reluctant to spend because they are not certain of the value of their properties.
Some 5.4 million Americans lost their homes to foreclosures in 2009 and 2010, and another five million foreclosures are expected. Construction of one-family homes nosedived from 1.7 million annually in the mid-2000s to 450,000 now. The decline in wealth of US consumers, caused by the collapse of the housing market, is estimated at $7.3 trillion in the past five years.
The White House and department of housing and urban development negotiated the plan announced yesterday with the independent Federal Housing Finance Agency, which was created in 2008 to oversee the government-owned mortgage agencies Fannie Mae and Freddie Mac. Fannie and Freddie own or insure half of all US home loans in the US.
Mortgage rates now average 4.11 per cent for a 30-year fixed- rate mortgage. But many borrowers pay far higher rates and have not qualified for relief under Harp. As outlined by housing secretary Shaun Donovan and the director of the National Economic Council Gene Sperling yesterday, the refinancing initiative will do away with the 125 per cent ceiling on Harp, which limited the programme to those who owe only 25 per cent more than their property is worth. It will replace the requirement for repeated property appraisals at the expense of the applicant with what Mr Donovan called “an automated valuation technique”. Other onerous fees imposed by Fannie and Freddie, for example for insurance, will also be waived.
According to the Wall Street Journal, four big banks now control 60 per cent of the mortgage market, which has clogged mortgage-processing and led to higher prices for consumers. Mr Sperling said "unleashing competition" among lenders would be the most significant aspect of the plan, though it was not clear how this would be achieved.
Mr Donovan said obtaining lower interest rates would save $2,500 annually for families. “Expanding housing refinance opportunities has been a major focus of President Obama this year,” he said.
An investigation published yesterday by the Washington Post detailed tensions within the administration between Mr Donovan, who defended homeowners, and Mr Obama’s economic counsellors, led by treasury secretary Timothy Geithner, who defended the interests of the banks.
“We thought [reducing homeowner debt] would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness,” Mr Geithner said. The limited plan unveiled by Mr Obama will reduce monthly interest rates but will not alter debt principal.