Executive Order Offers Mortgage Debt Relief to Some Struggling Homeowners
President Obama unveiled a plan Monday to provide a measure of mortgage debt relief for some homeowners who are underwater on their home loans.
Obama announced his plan from the front porch of a home in Las Vegas, which has one of the highest foreclosure rates in the country. Using executive powers that bypass Congress, Obama outlined how the plan would provide debt relief for homeowners hit hard by the housing bust.
The plan, spearheaded by the Federal Housing Finance Agency, which oversees government-sponsored lending giants Fannie Mae and Freddie Mac, alters the Home Affordable Refinance Program (HAMP), which has received substantial criticism for helping only a fraction of those it was designed to assist.
Under the plan, struggling homeowners with federally-backed mortgages will be allowed to refinance their home loans without getting a new appraisal or a full credit check. The program also eliminates some risk-based fees for borrowers.
Although the administration said the changes will help thousands of homeowners gain some much-needed mortgage debt relief, the plan does have some notable eligibility caveats:
- Only homeowners with mortgages backed by Fannie Mae and Freddie Mac are eligible for refinancing.
- Borrowers must be current on their mortgage payments, with no late payments in the past six months and no more than one late payment in the past 12 months.
- Borrowers must have good credit.
- Eligible mortgages must have been sold to Fannie Mae or Freddie Mac before May 31, 2009 and canâ€™t have been previously refinanced under HAMP.
- Eligible mortgages must have loan-to-value ratios of more than 80 percent (â€śPresident Obama Announces New Program to Help Struggling Homeowners,â€ť ABC News, Oct. 24, 2011).
Experts Question Mortgage Debt Relief Programâ€™s Ability to Help Homeowners
Proponents of the program say that it would help boost the economy by reducing homeownersâ€™ mortgage debt and giving them more expendable money. However, economists disagree on the number of people the program would benefit. Some say it wouldnâ€™t affect more than 1 million households â€” more than 6 million homeowners are delinquent on their mortgage payments or are facing foreclosure â€” while others claim the restrictions are too tight and will leave behind underwater homeowners with bad credit.
Thus far, the $75 billion HAMP program has not fared well. Some experts say that HAMP has not been aggressive enough in addressing the problem. Others say HAMP bailed out banks, which should have been the target of a federal crackdown, by paying them to change the mortgages of struggling homeowners. Even Obama recently admitted that his administration has done too little to help homeowners.
â€śThe continuing decline in the housing market is something that hasnâ€™t bottomed out as quickly as we expected,â€ť Obama said in July. He said that the administrationâ€™s programs were â€śnot enough. And so weâ€™re going back to the drawing board.â€ť
However, Obama also said that no federal program would be able to solve the housing crisis. â€śSome folks just bought more home than they could afford and probably theyâ€™re going to be better off renting,â€ť Obama said.
In a conversation with reporters following the administrationâ€™s announcement of the new program, White House Press Secretary Jay Carney echoed Obamaâ€™s sentiments. â€śUnfortunately there is no silver bullet, there is no simple fundamental restructuring that will wipe away the damage done by the bursting of the housing bubble,â€ť Carney said. â€śBut there are measures that we can take that can help homeowners.â€ť
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