Obama details plan to throw a line to 'underwater' homeowners

President Obama detailed plans Wednesday to help an estimated 3.5 million homeowners refinance into lower-rate mortgages through the Federal Housing Administration and to turn hundreds of thousands of houses repossessed by lenders into rentals.

The president spoke at a news conference in Falls Church, Va., where, he said, property values have declined 25 percent since the housing bubble burst five years ago.

Obama, who announced the initiative in his State of the Union address Jan. 24, said the program was designed for "responsible" homeowners who are current in their mortgage payments but are unable to refinance loans at fixed rates as low as 3.8 percent because they owe more than their houses are now worth.

Nationally, about 10 million borrowers fall into this "underwater" category, he said.

To pay for the program, financial institutions would be charged what the president said was a "small fee," which would require congressional approval. The program's cost is $5 billion to $10 billion, Housing and Urban Development Secretary Shaun Donovan said Wednesday.

At a news conference in Washington before Obama spoke, House Speaker John A. Boehner (R., Ohio) said the plan was the latest in a series that has delayed efforts to clear the market of foreclosures, which is necessary before home prices can begin to recover.

"None of these programs have worked," Boehner said of the administration's efforts thus far, which began in February 2009.

The comment was interpreted as a sign that getting Congress to approve Obama's plan would not be easy. Two years ago, when Congress was in Democratic hands, a similar request to charge lenders fees was defeated.

Even the president acknowledged at his news conference that "these programs have not worked as we had hoped."

Obama outlined key aspects of the new proposal, some parts of which require action by Congress, while others are administrative changes that could be made without congressional approval:

Borrowers current on their mortgage payments would be able to refinance, saving an average of $3,000 a year. The president said he hoped the savings would be used to pay down loans and boost borrowers' equity in their houses - in effect, principal reduction. If they agreed to do so, Donovan said, origination fees would be reduced.

The refinancing process would be streamlined for borrowers with loans held by Fannie Mae and Freddie Mac. Those with loans held by other entities would refinance through the FHA.

The FHA would insure mortgages with balances higher than the value of the properties up to 140 percent of current appraised value. Donovan said those FHA mortgages would be protected by a separate insurance fund, to minimize risk to the entire portfolio. Congress also would need to approve the FHA's role in the program.

A "Homeowners' Bill of Rights" would be established, which Obama called a "set of standards to make sure borrowers and lenders played by the same set of rules." That includes a simplified mortgage-disclosure form that was developed by the new Consumer Finance Protection Bureau and tested in Philadelphia in January. Other provisions, including the right to appeal, are designed to protect families against "inappropriate foreclosure."

A pilot program would "transition" foreclosed properties into rental housing to help stabilize neighborhoods overseen by the Federal Housing Finance Agency (FHFA).

A year's forbearance from lenders and servicers would continue to be encouraged for borrowers looking for work.

Investigation of mortgage origination and servicing abuses would be undertaken, an effort Attorney General Eric H. Holder Jr. launched Friday.

Mortgage modifications and job creation would be encouraged through Project Rebuild, the federally financed program that rehabilitates foreclosed homes for resale to primary buyers.

The FHFA's foreclosures-to-rentals pilot program would allow prequalified investors to purchase pools of foreclosed properties with the requirement that those properties be rented for a specified number of years.

That could provide relief in housing markets depressed by the volume of foreclosures and increase rental properties in markets where there is now a shortage, Obama said.

"No single program will solve the housing problem," which continues "to be a drag on the economy trying to recover from the recession," he said.

This effort, however, is "designed to provide the middle class with a sense of security," the president said, and those who want be in that group will "have the chance."

See two sample refinancing settlement disclosure forms at philly.com/business.EndText