financial services

Obama plans assistance for rentals, mortgage refinancing

Posted 2/1/12

WASHINGTON - President Barack Obama will announce a package of proposals to jolt the housing market out of its doldrums, including an effort to help more borrowers take advantage of historically low mortgage interest rates, the White House said Wednesday.

The president, following up on a promise made during his State of the Union speech last week, will ask Congress for a tax on large banks in order to help homeowners refinance into government-insured Federal Housing Administration loans, the White House said this morning in a fact sheet on the proposals. Any risks to the FHA’s insurance program would be financed with a fee on financial companies with more than $50 billion in assets.

Congress has refused to act on similar requests twice in the last two years.

The proposal includes a pilot program to sell foreclosed properties in bulk to investors who maintain the homes as rentals, according to the White House. The pilot will be limited to homes owned by Fannie Mae, the mortgage company under government conservatorship.

In a separate announcement, the Federal Housing Finance Agency invited real estate investors to apply for eligibility to bid prior to the auction, which has not been scheduled.

To qualify, investors must show financial wherewithal and experience and agree to keep “certain information” about the program confidential. Investors may apply at www.homepath.com/structuredsales.html.

‘Maximize Value’

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” FHFA Acting Director Edward J. DeMarco said today in a press release.

Obama is scheduled to speak about the housing plan today in Falls Church, Virginia, a state that is expected to be an important election battleground.

The announcement adds to a mosaic of existing programs aimed at boosting the housing market, which is entering its fourth year of weak sales and high foreclosures.

The FHA refinancing idea, if it wins funding from Congress, would help borrowers cut “through the red tape” and limit paperwork. Appraisals and tax returns would not be required, according to the White House fact sheet.

“A lender need only confirm that the borrower is employed,” according to the document. Unemployed borrowers might qualify for the loans if they meet other credit requirements.

Thousands in Savings

The proposal could save borrowers an average of $3,000 a year, according to the document. The program is open to “responsible” homeowners current on their payments and with no more than one delinquency in the previous six months.

Loan applicants must have a credit score of 580 or higher to be eligible and occupy the property they want to finance.

Loans must not exceed FHA lending limits, which range from $271,050 to $729,750, depending on the location of the purchase property. Borrowers who are underwater, or owe more than their home is worth, would be eligible to apply for the loans if they met other requirements.

Residential real estate prices fell more than forecast in November, according to a Jan. 31 S&P/Case-Shiller report, and property values have dropped 33 percent from their peak in July 2006.

A ‘Depressed’ Market

About 11 million households are underwater, or owe more on their homes than the properties are worth. Earlier this month, the Federal Reserve Board called the housing market “depressed.”

The FHA, created in 1934 with the goal of expanding homeownership for underserved communities, charges lenders and borrowers a fee in exchange for a guarantee that mortgages will be paid. The agency has grown rapidly since the 2008 subprime lending collapse and now insures more than a third of U.S. mortgages. At the same time, the agency’s cash reserves hit a record low of $2.6 billion last year.

Since the 2008 subprime lending collapse, the FHA has paid $37 billion in claims related to defaulted mortgages, according to an independent audit released in November.

In a separate announcement last week, Obama expanded the Home Affordable Modification Program, or HAMP, relaxing rules on loan modifications and tripling incentives to banks to help more homeowners lower their interest rates and shed mortgage debt.

The revision, which would be funded with about $20 billion in unobligated TARP money, would pay Fannie Mae and Freddie Mac to forgive debt on devalued homes. The companies, which were taken under government conservatorship in 2008 amid massive losses, so far have refused to reduce mortgage debt for distressed borrowers.

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