Obama Mortgage Relief Refinancing Plan – A Tax on Big Banks and More

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

mortgage refinance plan

The latest mortgage relief plan focuses on refinancing.

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.

The Populist

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?



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Published or updated May 24, 2013.


  1. I’ve been critical of all of the other loan programs as they only help out those with Fannie or Freddie mortgages. Plus the banks were resistant to play along. Now comes this program. It sounds like you don’t need to have your current mortgage backed by Fannie or Freddie, just the new loan will be. This could (I emphasize could) help out many people. Of course, as you pointed out, banks will be adding in fees somewhere. My guess would be added closing costs or higher interest rates. It will be interesting to see how this plays out.

  2. Thomas - Ways to Invest Money says:

    The point his really helping those in need. I know that a lot of people got mortgages that were clearly out of their ranges but that is the banks fault for simply turning the other cheek and looking to get deals done. Then you have those that bought 3-4 homes trying to be investors what happens to them? I hope that something works and works soon but in the end I dont see the banks allowing themselves to lose. Fees and charges will get passed on some how.

    • It’s not always a banks fault that people bought too much house or couldn’t afford their home. I’m sure there were a good number of people who bought a lot of house then chose to remodel and buy new things for the house.

      But there was a looking the other cheek as well.

      And those that bought to be investors were jumping onto a bubble. Remember all of the shows that were on TV about flipping and selling homes? It made it look easy, but that doesn’t mean people should have been buying like that.

What Do You Think?