President Barack Obama will announce a package of proposals to jolt the housing market out of its doldrums, including an effort to help more borrowers take advantage of historically low mortgage interest rates, an administration official said today.
Obama will ask Congress for a tax on large banks in order to help homeowners refinance into government-insured Federal Housing Administration loans, said the official, who requested anonymity in advance of the formal announcement. Any risks to the FHA’s insurance program would be financed with a fee on financial companies with more than $50 billion in assets.
Congress has refused to act on similar requests twice in the last two years.
The president also will reveal a pilot program to sell foreclosed properties in bulk to investors who maintain the homes as rentals, the official said. The pilot will be limited to homes owned by Fannie Mae, the mortgage company under government conservatorship.
Obama is scheduled to announce the proposal in a speech today in Falls Church, Virginia, a state that is expected to be an important election battleground. The proposal was reported earlier in the Wall Street Journal.
The announcement adds to a mosaic of existing programs aimed at boosting the housing market, which is entering its fourth year of weak sales and high foreclosures.
The FHA refinancing plan, if it wins funding from Congress, would be open to borrowers who have been current on their payments and have had no more than one delinquency in the previous six months, a senior administration official said.
Falling Prices
Residential real estate prices fell more than forecast in November, according to a Jan. 31 S&P/Case-Shiller report, and property values have dropped 33 percent from their peak in July 2006.
About 11 million households are underwater, or owe more on their homes than the properties are worth. Earlier this month, the Federal Reserve Board called the housing market “depressed.”
The FHA, created in 1934 with the goal of expanding homeownership for underserved communities, charges lenders and borrowers a fee in exchange for a guarantee that mortgages will be paid. The agency has grown rapidly since the 2008 subprime lending collapse and now insures more than a third of U.S. mortgages. At the same time, the agency’s cash reserves hit a record low of $2.6 billion last year.
Since the 2008 subprime lending collapse, the FHA has paid $37 billion in claims related to defaulted mortgages, according to an independent audit released in November.
Loan Modifications
In a separate announcement last week, Obama expanded the Home Affordable Modification Program, or HAMP, relaxing rules on loan modifications and tripling incentives to banks to help more homeowners lower their interest rates and shed mortgage debt.
The revision, which would be funded with about $20 billion in unobligated TARP money, would pay Fannie Mae and Freddie Mac to forgive debt on devalued homes. The companies, which were taken under government conservatorship in 2008 amid massive losses, so far have refused to reduce mortgage debt for distressed borrowers.
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