In the State of the Union President Obama announced the Administration’s latest proposal to help struggling homeowners lower mortgage payments; and help neighborhoods hard hit by vacant and abandoned housing. Unlike existing programs that target assistance to homeowners at high risk of foreclosure, the new proposal is aimed directly at middle class homeowners who may or may not be at risk of foreclosure, but who are in many instances tied to mortgages worth much more than their homes. If successful, the proposal could jumpstart the housing market by opening an avenue to hundreds of thousands of homeowners to refinance their mortgages. But first, the proposal will need approval from an extremely combative Congress, in an election year, where common ground on any issue has been hard to find.
The new proposal would help homeowners who have been mostly current on mortgage payments over the course of a year. More than one missed mortgage payment over six month prior to the immediate past six months would disqualify an applicant. Under the proposal, any qualifying homeowner that has been unable to refinance their mortgage in the private market could refinance through a federal entity to take advantage of historically low interest rates. Homeowners with mortgages insured by Fannie Mae and Freddie Mac would have access to streamlined refinancing through those entities. Homeowners with privately held or insured mortgages would have access to refinancing through the Federal Housing Administration. Homeowners with FHA mortgages and rural homeowners with mortgages insured by USDA would be given similar access through those agencies. Federal mortgage refinancing would only be available for single-family, owner-occupied homes to prevent housing speculators from benefitting. According to the White House, the program would cost the federal government a total of $5 to $10 billion, which would be paid for by a proposed “Financial Crisis Responsibility Fee” on financial institutions.
Cities and towns with high rates of foreclosure and vacant housing would also benefit. First, the proposal includes a request to Congress for $15 billion in FY 2013 for Project Rebuild, modeled off the Neighborhood Stabilization Program, to provide direct grants to local governments to put people to work on rehabilitating homes made vacant by foreclosure and commercial property vacated or damaged as a result of the economic downturn. Secondly, the President is calling on Congress to fund the Housing Trust Fund for the first time at $1 billion. Housing Trust Funds would be distributed to states based on vacancy and foreclosure criteria for use in neighborhoods impacted by the housing crisis. Lastly, a pilot program to transition foreclosed homes held by Fannie Mae and Freddie Mac into rental properties could help cities and towns increase necessary affordable housing stock and quickly put vacant homes to use rather than remaining vacant and depressing surrounding home values for an indefinite period of time.
However, without a significant groundswell of support, the President’s proposal faces high hurdles in the House where Republicans have made decreasing the role of the government in the housing market a priority in response to near collapse of Fannie Mae and Freddie Mac and in opposition to the Wall Street Reform bill. Other opponents include financial industry organizations, including the American Bankers Association, who are lining up against the proposed fee on financial institutions that would pay for federal mortgage refinancing.
After the President’s proposal was announced, House Financial Services Chair Spencer Bachus (R-AL) took to the pages of USA TODAY to criticize the proposal for “doing nothing to help those on the verge of losing their homes”. He also made the point that Republicans are unlikely to support a proposal that shifts the risk of refinancing underwater borrowers from private lenders to taxpayers. Earlier this year, the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises dealt a setback to the proposal months before it was even introduced by approving, along party lines, a bill that would repeal authorization of the Housing Trust Fund. Opponents of the Trust Fund call it a waste of taxpayer money and little more than a slush fund. Sound familiar? Opponents of CDBG use the same argument.
Congressional supporters, however, are saying they will nevertheless push the proposal forward. Senate Majority Leader Harry Reid, whose home state of Nevada has been hotbed of foreclosure activity said the President’s housing proposal is a high-priority. He also chastised opponents of the proposal for advocating a “do-nothing policy”. Still, without some Republican assistance, the chances of the proposal advancing will remain small. NLC is supporting the Administration’s efforts to help homeowners and improve the housing market, and is urging the President and Congress to find common ground.