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Obama reveals housing plan

By Polyana da Costa · Bankrate.com
Tuesday, August 6, 2013
Posted: 5 pm ET

President Barack Obama has outlined a plan to overhaul the U.S. housing finance system, help more homeowners refinance their mortgages and make it easier for some homebuyers to get access to mortgages.

Obama wants to wind down the two mortgage giants that own or guarantee about half of mortgages: Fannie Mae and Freddie Mac. While the government must continue to support the housing system and will continue to play a role in funding home loans, private lending "should be the backbone of the housing market," Obama said during a speech in Phoenix.

Lenders won, taxpayers lost

"For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag," he says. "'It was 'heads we win, tails you lose.' And it was wrong."

After the financial crisis, Fannie and Freddie went into receivership and the government rescued the companies with a $187 billion taxpayer-funded bailout.

"The era of expecting a bailout after your pursuit of profit puts the whole country at risk is over," Obama says.

The Obama administration says the business model of the two entities must be changed so private investors are on the hook for losses on bad loans. Legislation to reform the mortgage giants must also ensure that homeowners continue to have access to 30-year fixed-rate mortgages.

Is the housing market ready for changes?

Many consumer advocates support the president's view.

"We've been waiting a long time for the president to weigh in, and we cannot be more pleased," says Julia Gordon, director of housing and finance policy at the Center for American Progress.

If done right, the reform of Fannie and Freddie could help the housing market, she says.

"Right now there's so much uncertainty that is keeping (private) investors out of the (mortgage) market," she says.

The president's speech should be a "wake-up call to others in Washington about the urgent need to put in place a finance system to house current and future generations," says Roberto Quercia, a professor and director of the UNC Center for Community Capital at the University of North Carolina at Chapel Hill.

"I am encouraged by the president’s remarks, as they bring attention back to the unfinished business of housing," Quercia says.

But these changes won't happen overnight, or at least not until Congress agrees on a plan.

A plan for refinancers and homebuyers

Some of the ideas proposed by Obama aren’t necessarily new, but if approved, many underwater borrowers would be able to refinance their loans.

The Obama administration is once again calling for a government-sponsored plan that would allow borrowers with loans that are privately owned to refinance their loans even if they owe more than their homes are worth.

Even though mortgage rates are rising, the move isn’t too late yet.

"It's especially not too late for people with private-label mortgages who are underwater and haven't been able to refinance," Gordon says. "Some of them are still stuck with 6 (percent) or 7 percent mortgages."

Among several ideas aimed at helping homebuyers, the Obama administration says the FHA is working on an initiative that will help borrowers regain access to FHA mortgages. The program would help buyers who went through financial difficulties due to job loss and who have found jobs again.

"Now that we've made it harder for reckless buyers to buy homes they can't afford, let's make it easier for qualified buyers to buy homes they can," Obama says. "We should simplify overlapping regulations and cut red tape for responsible families who want to get a mortgage, but who keep getting rejected by banks. And we should give well-qualified Americans who lost their jobs during the crisis a fair chance to get a loan if they've worked hard to repair their credit."

What do you think of the president's proposals?

Follow me on Twitter @Polyanad.

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148 Comments
Will
August 14, 2013 at 5:44 pm

it would be great if I could refinance my house but I can’t find a mortgage that can help me would you know why? My house loan is at 720K and its estimated worth is 1.1m, and I can’t seem to get someone to help me any advice?

Hickson
August 12, 2013 at 5:11 pm

The FHA program is not making it easier for homeowner but worse. No longer can you stop paying private mortgage insurance after 5 years. you now have to pay it for the entire length of the loan. How will that help us poor people.

Those extra funds would be better used by applying them to the principal balance of the loan to help us pay our loans off earlier.

The 20% pay back is also hard on us that's why we took out FHA loans in the first place.

So how do we get a break if we can't refinance until we pay back 20% of our loan while the interest rates continue to rise.

Joseph
August 12, 2013 at 1:25 pm

I keep hearing that the housing market crashed because people were given loans who could not afford them, if you don't know anything about obtaining a mortgage, that practice is called FRAUD by the banks involved. The bank is responsible for verifying the applicants income,etc and THE BANK approves the loan and the loan amount -not the government. The government only GUARANTEES the loan and the homeowner has to pay PMI due to this guarantee. The banks like Countrywide received substantial income from closing costs for steering otherwise qualified people to substandard mortgage products. Their greed and fraud helped destroy our economy! They know that the government will pay if the homeowner fails to pay their mortgage- that's not the governments fault.

Louis
August 11, 2013 at 8:41 pm

I support this move by the government. It's brilliant for our economy and for covering our federal deficits. allow homeowners to refinance who are paying their bills but are under water. Lowering their interest rate has a two fold effect. It helps build equity or get above water sooner and it reduces the mortgage interest tax deduction accross all taxpayers which will likely generate an extra $1,500 income per household to the federal government. Get the nations people back in the black, and reduce deficits. How is this bad?

Susan Parker
August 11, 2013 at 4:47 pm

Stop trying to fix everything. Concentrate on fixing the programs that were created under his watch. Obama Care, State department, IRS department etc......

LMAO
August 11, 2013 at 3:42 pm

So it has come full circle. It was the government that decided that everyone should have access to the "American Dream" regardless of their ability to pay for it. No/Low down payment loans, government loan guarantees for non-creditworthy borrowers, anti red line legislation threatening lenders with criminal prosecution for not lending money in blighted neighborhoods, all directly the fault of "do gooder" government officials pandering for reelection that finally resulted in inevitable collapse. The only wonder is that the scheme lasted as long as it did. Insurance, reinsurance, government pressure and reams of phony paper parlayed this doomed scheme for years longer than anyone would reasonably expect but doomed none the less. So now Obama wants banks to go back to making responsible loans. At least until he decides that responsible underwriting disproportionately excludes his favorite constituency.

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