President Barack Obama launched on Tuesday a bid to help more U.S. homeowners get cheaper mortgages, a move that could provide a boost to the struggling economy but is likely to hit stiff opposition from Republicans.
Obama, whose re-election campaign could be hurt by the depressed housing market, said in his annual State of the Union speech that banks should cover the cost of the mortgage refinancing plan because they helped cause the crisis.
"Responsible homeowners shouldn't have to sit and wait for the housing market to hit bottom to get some relief," he said. "No more red tape. No more runaround from the banks."
Other Obama administration plans focused on cutting costs for borrowers whose mortgages are backed by government-run housing finance giants Fannie Mae and Freddie Mac but the new scheme would be open to all borrowers who are current on their payments. Many of them remain locked into expensive mortgages dating to the days of the housing boom. Fannie and Freddie between them own or guarantee about half of all U.S. mortgages.
The property market, which helped spark the recession four years ago, remains under stress as home prices have lost almost a third of their value and a backlog of foreclosures is slowing the recovery.
The Obama administration's programs so far have failed to save as many homeowners from losing their homes as expected. The president said he would send his latest plan to address the U.S. housing crisis to Congress within the coming weeks. It would create a program for Americans to take out new and cheaper mortgages as long as they are current on their payments. Savings would amount to about $3,000 per household each year, according to White House officials. No further details were provided by senior administration officials.
Republicans in Congress are deeply opposed to any expansion of the role of Fannie and Freddie, which have soaked up $169 billion so far in taxpayer aid since they were rescued at the height of the financial crisis in 2008.
Obama faces the uphill challenge of working with the Republican-led U.S. House of Representatives and a small Democratic majority in the Senate.
"ANSWER WILL BE NO"
"In essence, what he is saying is let's create a tax on the banks and compel them to lower their costs to borrowers," said Representative Scott Garrett, a New Jersey Republican and head of the subcommittee in the House of Representatives that oversees Fannie and Freddie.
"The bottom line is that he is suggesting Congress pass a tax increase and the answer will be no," Garrett told Reuters after Obama's speech.
The White House is trying to turn up the heat on Congress in an election year to help homeowners, many of whom are saddled with mortgages that are worth more than their homes, after exhausting its own initiatives to cut mortgage debt.
Earlier this month, the U.S. Federal Reserve suggested ways Congress could act to stabilize the nation's battered housing market. Its collapse triggered the 2007-09 recession and has since weighed heavily on the economic recovery.
CoreLogic, a company that tracks real estate data, estimates about 10.7 million U.S. borrowers, roughly 22 percent, of all outstanding loans are underwater.
Although mortgage rates have fallen to historically low levels, they have yet to reach all homeowners. The average 30-year rate dropped to 3.88 percent last week, according to Freddie Mac.
Many homeowners have not been able take advantage of the ultra-low rates because the prices of their homes have fallen so much and lending standards have tightened. Refinancing has remained particularly challenging in the real estate markets hit by some of the biggest home price declines, including metropolitan areas in Arizona, Nevada, Florida and California.
Three months ago, the White House loosened requirements on a federal effort, called the Home Affordable Refinance Program, or HARP, to make it easier for underwater homeowners with government-backed loans to lock into mortgages at lower rates.
The White House hoped to reach about 4 million to 5 million borrowers when it started HARP in 2009. The plan was introduced as a counterpart to other government efforts to modify loans for homeowners at risk of foreclosure.
But helping borrowers with little or no equity in their homes to refinance their mortgages has proven harder than government officials expected after revamping HARP. So far, only 928,570 borrowers have refinanced through the program.
The Fed told Congress that allowing Fannie and Freddie to refinance mortgages that they do not currently guarantee could help between 1 million and 2.5 million U.S. borrowers, although such a move would expose the agencies to more credit risk.
(Reporting By Margaret Chadbourn; Editing by David Storey and Bill Trott)