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Obama plan to lower mortgage payments could help, but how much?

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"The truth is, it’s going to take more time than any of us would like for the housing market to fully recover from this crisis," Obama said as he unveiled details of new initiatives. "I’ll be honest – the programs that we put forward [so far] haven’t worked at the scale that we hoped."

He said his administration's efforts have helped nearly 1 million people refinance in the past two years. But the scale of the problem is massive.
The nation now has about 30 million mortgages backed by government-sponsored enterprises (GSEs), mainly Fannie or Freddie, Newport says. About 3 million of those are "under water," meaning the loan is now bigger than home value. Another 20 million or more have been underwritten entirely by private lenders. Some 35 percent of those, 7 million or more, are under water.

Obama's argument is that as more families refinance at a low interest rate, incidences of default and foreclosure will diminish, helping to stabilize home values and restore consumer confidence. The families who benefit will also get extra cash in their pockets each month, which they can use to buy other things in the economy or to pay down debt.

The president's latest plan includes several major elements:

  • Allowing more borrowers with GSE-insured loans to refinance through Fannie and Freddie. Obama outlined several moves toward "streamlined refinancing."
  • Creating a new refinance program for non-GSE borrowers, through the Federal Housing Administration (FHA). Costs of the program would be covered by a new Financial Crisis Responsibility Fee on banks. This program, and the fee on banks, would require congressional approval.
  • As with Obama's existing "refi" program, the new one for non-GSE loans is designed to allow many underwater borrowers to benefit. Participants must live in the home and be current on the mortgage. Availability would be more limited if a loan is deeply underwater (loan more than 140 percent of home value) or if borrower is unemployed.
  • A new initiative will aim to turn more foreclosed homes into rental properties. That's better, Obama said, than having lots of vacant homes in a neighborhood.
  • The Consumer Financial Protection Bureau is moving to make the mortgage application process simpler and more transparent. Obama held up a single sheet of paper designed to replace what are currently overlapping and complex disclosures.
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