Obama State of the Union 2012: Mortgage Refinance Changes Face Obstacles

President Barack Obama’s proposal to grant millions of home owners to reduce mortgage payments is the latest in a series of federal efforts to aid the housing market, but it faces a number of obstacles.

But Obama stated it was time to expand government involvement, and stated the changes could help qualifying home owners save around $3,000 a year in mortgage costs.

“Responsible home owners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief,” he stated during Tuesday’s speech.

Details of the legislation have not been released, but a senior official told the New York Times it would benefit two to three million home owners with a cost of no more than $10 billion. Refinances could be issued through the Federal Housing Administration (FHA), a government bureau that backs approximately a third of the mortgage market.

It would be funded by fees on massive banks with assets over $50 billion, a measure that also must be approved by Congress.

The Obama administration hopes the program will expand refinance eligiblity at a time when interest rates have been at historic lows, with the 30-year average rate hitting 3.88 percent last week, according to Freddie Mac. Currently, some home owners have been unable to take advantage of low rates because of stricter underwriting standards and down payments.

Some say that the proposed program does not go far enough. The National Association of Realtors (NAR), a major industry group, commended the action but called for more efforts to help those facing foreclosure.

“Realtors believe that more must be done to stem the rising inventory of foreclosed homes and address the lack of available and inexpensive mortgage financing,” stated Moe Veissi, president of the group, in a statement. “Realtors are calling upon the Obama administration, Congress and lenders to help keep more people in their homes by taking more aggressive steps to alter loans and help home owners significantly reduce their monthly mortgage payments.”

The NAR also called for a more streamlined short sale process and possibly lessening fees and down payments to expand financing.

The Federal Reserve also called for more government action on housing in a report earlier this month. In addition to increasing refinance activity, the paper explored converting some foreclosed homes into rentals.

However, the Fed noted the tension between boosting housing and minimizing taxpayer losses by reducing risk exposure at Fannie and Freddie, which had cost taxpayers over $160 billion since a government takeover in 2008. More could be done to aid housing if the two agencies took on a larger role, stated the Fed.

Officials stated that the full legislation for the mortgage refinance program would be introduced soon.

Separately on Tuesday, Obama announced the formation of the Unit on Mortgage Origination and Securitization Abuses, headed by New York Attorney General Eric Schneiderman, to investigate wrongdoings that led to the financial crisis. The action comes as five major banks are in foreclosure settlement speaks with the administration and say attorney generals.

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