We Can’t Wait
That’s the new slogan that the Obama Administration is trying out, presumably thinking of the campaign as Obama approaches the full force of election season.
In Las Vegas, one of hardest hit housing markets in the United States, Obama said, “we can’t wait” for an increasingly dysfunctional Congress to do its job and provide relief for the millions of Americans underwater on their mortgages.
Obama went on to say that the housing bubble was the greatest cause of the current economy and that millions of Americans have continued to responsibly pay their mortgage even though their home is worth less than the value of the loan. In his recent State of the Union address, Obama laid out a plan to help underwater homeowners.
Here’s how the mortgage relief plan would work.
Lower Mortgage Payments
Underwater homeowners who haven’t had more than one late payment in the last six months, would be eligible for the program.
Homeowners would be able to refinance their home and possibly see hundreds of dollars knocked off their mortgage payment.
In the past, those with underwater mortgages weren’t able to refinance because banks didn’t want to take the write down that would come with the refinancing process, but under new rules, homeowners may qualify for an FHA backed loan. The proposal also requires banks to reduce mortgage balances for homeowners who owe more than 140% of their home’s current value.
In a bold statement, President Obama said, “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.”
In a housing market that has failed to gain traction since the crisis of 2008 and 2009, Obama’s statement and housing relief proposal comes at a time when homeowners are having trouble seeing a way out of their underwater mortgage.
Even worse, in order to sell their home, some homeowners have to put up a large sums of money during the closing, making selling difficult to impossible for some.
The Obama Administration estimates that the new program could benefit as many as 3.5 million homeowners.
Criticism to the Mortgage Relief Plan
It didn’t take long for Republicans to fire back.
Republican Speaker of the House John Boehner said that this program is another in a long line of similar programs that haven’t worked, referring to a past program that attempted to provide relief that largely fell flat.
As Obama begins to ramp up his campaign, he has taken on a more populist tone.
The mortgage relief program joins the student loan assistance program and numerous small business incentives, all aimed at helping individuals escape the crippling effects of the challenging economy.
In recent appearances, Obama has made statements like, “I’ve instructed my administration to look every day for actions we can take without the approval of Congress.” This attack on the grid lock that exists within both houses of Congress is aimed at making the administration look better equipped to make changes that will reach individual citizens.
To Sum Up
Obama’s mortgage relief proposal may provide needed relief for millions of underwater homeowners throughout the country but not all lawmakers believe that this program will provide any more relief than the less than stellar programs of the past.
On top of that, the plan is to be financed by fees charged to big banks based on the size and risk of their portfolios. Is it a stretch to think that banks will find some way to pass these costs on to their customers (I’m looking at you debit card fees)? The cost of this plan is somewhere between $5 billion and $10 billion.
It will be interesting to see where this goes in this an election year. There are far too many homeowners out there that have truly been hurt due to risky financial gambles on the part of big banks and investment firms. At the same time there are many who took on too much debt than they could afford. Banks weren’t the only ones who took on risk. But banks got bailouts and homeowners are still losing their homes to foreclosure.
I don’t think there’s an easy solution.
What do you think of this latest mortgage relief plan that focuses on refinancing?