Obama administration tries to reset federal response to mortgage crisis

The Obama administration is reworking a key home-refinancing program to help homeowners who owe more on their mortgages than their homes are worth. 

The effort is being announced the same day President Obama travels to Nevada, a swing state and one of those hardest hit by the housing crisis. 

Nevada has the nation’s highest percentage of mortgages “underwater,” meaning the mortgage is larger than the home’s worth. Obama will make remarks on his jobs proposal at a private residence in Nevada, where he is also expected to address the housing crisis. Obama separately has several fundraisers planned in Nevada and California. 

{mosads}Housing is a vulnerable point for Obama, as the Home Affordable Refinance Program (HARP), one of his main efforts to help the housing market, has fallen well short of the White House’s initial goal of aiding 3 million to 4 million homeowners. The program, the only Obama housing initiative intended to help borrowers who are underwater refinance, has helped just over 900,000 homeowners. 

By eliminating some criteria and trimming certain costs, Federal Housing Finance Agency Acting Director Edward DeMarco said he hopes more struggling homeowners will turn to HARP for help.

“What we are announcing today are some important and meaningful changes,” he told reporters. “We believe these changes will make it easier for more people to refinance their mortgages.”

Two administration officials — Housing and Urban
Development Secretary Shaun Donovan and Gene Sperling, director of the National
Economic Council — said the changes represent one step in a long ladder of
policy changes designed to not only boost the ailing housing market but spur
the economic recovery.

“The president is committed to attacking the housing crisis on all fronts and this is one part of the arsenal,” Sperling said during a conference call with reporters. “But it’s only one part and there
cannot be a serious effort to improve the housing situation if there aren’t
jobs.”

The housing market continues to drag down the overall economy, which could cripple Obama’s reelection effort in 2012.

The president also has come under criticism from Democrats for his handling of the housing crisis. Rep. Dennis Cardoza (D-Calif.) ripped Obama for his handling of the mortgage crisis last week as he announced he would not seek another term in office. Cardoza said he was “dismayed” by the administration’s failure to adequately address the crisis.

DeMarco has also come under fire, with Cardoza and other Democrats suggesting he be replaced. 

In a meeting with DeMarco recently, Rep. Elijah Cummings (D-Md.) told reporters the FHFA director should “move to the side and let somebody else come and replace you,” if he felt incapable of helping the lawmaker’s constituents. 

DeMarco took pains Monday to emphasize that this retooling did not mean the program was now available to all the nation’s struggling homeowners. Rather, the changes are intended to make borrowers who previously qualified for the program but struggled to obtain a refinancing more likely to get the help.

“This is not a mass refinance program,” he said. “It was really designed to enhance the program’s access for those borrowers who have always been the eligible population.”

Furthermore, he demurred on estimating how many new homeowners will tap the program with the changes in place, calling it an “inherently difficult thing to project.”

Under the changes, FHFA is eliminating the 125 percent loan-to-value ratio cap that previously was part of the program, opening the door to more underwater borrowers. However, they still must have a ratio of at least 80 percent.

In addition, homeowners will no longer be required to obtain a property appraisal to refinance under HARP, so long as Fannie or Freddie have an automated valuation of the property.

To qualify for the program, homeowners must also have a mortgage that was sold to Fannie Mae or Freddie Mac by May 31, 2009.

Furthermore, DeMarco said, homeowners must “have been faithful to their financial commitments,” with no delinquent payments, only one late payment in the last year and zero in the last six months.

The mortgage cannot have been previously refinanced under HARP.

Cardoza doesn’t think the changes go far enough. “It’s far too little, it’s just baby steps,” Cardoza said. “They’re still not getting it.”

The FHFA is looking to encourage homeowners, especially those underwater, to refinance into shorter-term loans.

Certain risk-based fees will be eliminated if borrowers agree to refinance into shorter-term mortgages. The rationale behind the move is that if an underwater homeowner moves to a shorter mortgage, he or she ends up paying off more principle in the short term. That speeds up the time it takes to get back “above water” on the mortgage.

“This is an important opportunity for American homeowners to improve the household balance sheet,” DeMarco said.

The new FHFA plan bears some resemblance to a bill introduced by Sens. Barbara Boxer (D-Calif.) and Johnny Isakson (R-Ga.) that was designed to help more than 2 million homeowners underwater on their mortgages — about double the number of the revised FHFA plan.

Donovan acknowledged there’s still significant work that remains to be done to help homeowners current on their mortgage payments but hampered by loans that exceed the value of their homes. 

FHFA is expected to announce a detailed plan on Nov. 15, the officials said. From there the administration will begin implementing the changes. 

Sperling and Donovan emphasized that changes have been in the pipeline for months but it took a cooperative effort of all stakeholders — including mortgage insurers, appraisers, title companies and servicers to solve the complex maze of barriers. Without that agreement the plans announced Monday “wouldn’t be nearly as an effective set of steps.”