New Housing Proposal May Help Millions Refinance

President Obama released a housing proposal Wednesday that aims to help more homeowners refinance their mortgages. The plan is the latest effort by the administration to help homeowners. It would allow those who are current on their mortgages to refinance at lower rates, even if they owe more than their home is worth. The administration says the effort could save millions of homeowners an average of $3,000. But past housing efforts have not lived up to billing, and this one faces its first obstacle on Capitol Hill.

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President Obama filled in some of the details today about his latest effort to shore up the housing market. The plan is designed to make it easier for homeowners to refinance and take advantage of rock-bottom interest rates. But whether it will work or even get past Congress is another matter.

As NPR's Scott Horsley reports, earlier White House efforts to fix the housing market have fallen far short of expectations.

SCOTT HORSLEY, BYLINE: Interest rates on home loans have been at historic lows, under four percent. But millions of Americans haven't gotten the benefit, because they're locked into a more expensive mortgage and haven't been able to refinance - because their homes lost value, or their credit's damaged, or because their lender simply doesn't want to.

President Obama's proposal would make it easier for anyone who's current on their existing loan to get a new, cheaper mortgage through the Federal Housing Administration.

PRESIDENT BARACK OBAMA: 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.

HORSLEY: Previous White House refinancing efforts have covered only borrowers with government-guaranteed loans. Now, Mr. Obama wants to extend the opportunity to all borrowers.

OBAMA: No more red tape. No more runaround from the banks. And a small fee on the largest financial institutions will make sure it doesn't add to our deficit.

HORSLEY: But the administration's refinancing efforts so far have been a disappointment. Nearly a million borrowers have gotten cheaper loans but economists say that's a small fraction of the number who could benefit. Mr. Obama acknowledged today his plan has not worked as quickly or as well as he hoped.

White House adviser Gene Sperling says the administration is trying to tweak the program so lenders are more motivated to compete for the refinancing business.

GENE SPERLING: Right now, a bank that is holding your mortgage at seven percent does not have a lot of incentive to go to responsible homeowners making their payment and say: Hey, would you like to refinance at four percent? But once they believe that that mortgage could be stolen away from them by a competitor offering a better rate, then they get in line and want to get there first.

HORSLEY: Mike Calhoun, who's with the Center for Responsible Lending, says there's widespread agreement the housing market needs more help. While there's no silver bullet, Calhoun says, the White House proposal is a good start.

MIKE CALHOUN: I think the administration has recognized they had not done enough on housing and I think this is part of their renewed effort to move the housing market through to recovery, both for the housing market and for the overall economy.

HORSLEY: But it's far from clear that Congress will go along with the president's proposal, especially the bank tax he suggested to cover the cost, estimated at five to $10 billion. The White House has been advocating a similar tax for two years now with no success.

Today's announcement seems at least partly designed to showcase the president making an effort in the housing arena, whether or not Congress follows his lead.

OBAMA: Government certainly can't fix the entire problem on its own. But 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.

(SOUNDBITE OF APPLAUSE)

HORSLEY: That's precisely the suggestion that Mitt Romney made to a Nevada newspaper last fall. Romney has since appeared to soften his stance, saying efforts to promote refinancing are at least worth further consideration.

Meanwhile, the administration is taking some steps on its own. The president's new consumer advocate is drafting simplified loan documents to help borrowers make an informed choice. Mr. Obama confessed to being puzzled himself by unintelligible banking paperwork.

OBAMA: I remember when Michelle and I bought our first condo. And we're both lawyers.

(SOUNDBITE OF LAUGHTER)

HORSLEY: The administration is also working to help investors buy foreclosed homes and convert them to rental properties. That could prevent a glut of vacant houses that drive down values in a whole neighborhood.

Scott Horsley, NPR News, the White House.

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