Seat Shuffles: Rodney Fong was elected president of...

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Obama's Party House: President Obama is set to hold...

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President Obama Proposes Mortgage Refinances for 'Responsible Borrowers'

After several largely ineffective programs to help troubled borrowers and after fruitless attempts at budging the hard-line conservator of Fannie Mae and Freddie Mac, President Obama is proposing a brand new refinance program for borrowers who are current on their mortgages, regardless of who owns their loan; the catch is that this one has to go through Congress.

"I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks," the President announced in his State of the Union address.

Unlike previous efforts in the refinance space, including a recently revamped and expanded government program for borrowers who owe more on their mortgages than their homes are currently worth, this plan would not be limited to those with loans backed by Fannie Mae and Freddie Mac, according to senior administration officials. The two mortgage giants own or guarantee about half of the nation's mortgages. It would be open to all borrowers current on their loans.

The Obama administration is offering precious few details, promising more in the coming weeks, but several sources say the plan is to ask Congress to allow the government mortgage insurer, the Federal Housing Administration (FHA), to back refinances of underwater mortgages. No estimates were given as to how many borrowers such a plan could potentially help, only that this would be a voluntary, borrower-initiated plan, and not a blanket refinance of all borrowers.

The costs, according to administration officials, would be modest, and the President would request that a portion of his financial crisis responsibility fee offset any of those costs, so there would be no addition to the federal debt. 

"A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust," Mr. Obama added.

Loan servicers could be faced with a flood of applications and could have to add resources to handle it all, but officials say the opportunity to generate revenues from the refinances would be incentive enough. Still many servicers have balked at the idea of mass refinancing, as the new loans could present more risk and less reward.

The idea is to remove the barriers and "frictions" that have kept many borrowers out of refinancing to historically low rates. Some of those include high levels of negative equity, loan level price adjustments, loan origination dates, put-backs on loans that default, and borrower qualifications.

Then there is the very basic problem of politics. Whatever the details of the plan are, Republicans, despite the fact that they have been calling for more refinances, are unlikely to hand President Obama a popular victory on the eve of a presidential election. They may also oppose anything that makes Fannie Mae and Freddie Mac bigger, when the two are allegedly winding down.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');and follow me on Twitter @Diana_Olick

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[Wobbling on Bike] NY Fed President Dudley’s Outlook

William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York gave a speech today providing a national and regional economic outlook. He is Vice Chair of the FOMC.

Here are my favorite semi-housing related points of his presentation:

*…the output of the U.S. economy—grew at a 3 percent annual rate from mid-2009 through 2010. While hardly a blistering pace, this growth was sufficient to add nearly 1 million jobs and reduce the unemployment rate by a half percentage point during 2010. Then, during the first half of 2011, growth slowed abruptly to a 0.8 percent annual rate. Job growth slowed so much that the unemployment rate rose back up to 9.1 percent.

Growth slowed partly because of temporary factors…Energy and commodity prices rose sharply…April’s tragic earthquake and tsunami in Japan disrupted many global supply chains.

Residential construction—which typically boosts economic activity during a recovery—is at a standstill. Moreover, many homeowners are now consuming less because the decline in house prices reduced their wealth…

Mortgage rates are at record lows…but obstacles to refinancing and access to credit for home purchases are limiting the support provided by low rates to house prices and consumption…the prospect that unemployment and negative equity will continue to feed the foreclosure pipeline—continues to put downward pressure on home values.

…cutbacks in employment and spending by state and local governments intensified in 2011 and are likely to continue…states are likely to cut spending further as the federal government stimulus aid to states peters out.

…the federal government will soon end much of the support it has been providing to the economy through stimulus programs….it will be very important to avoid excessive short-term cutbacks or tax increases that could harm the recovery.

…the sovereign debt crisis in Europe has weakened the outlook for global growth and with it, U.S. exports…some financial institutions are facing pressures to cut back lending.

Without robust growth, the economy is more vulnerable to negative shocks, which unfortunately seem to keep coming. It is like riding a bicycle—at a slow speed, the bicycle wobbles and the risk of falling rises. Politics here and abroad have not helped. The intense debate around raising the debt ceiling and the subsequent downgrading of the federal debt took a toll on household and business confidence.

Stabilizing the housing sector is particularly important because housing equity is an important part of household wealth...Taken together, such efforts could help shift people’s expectations about future house prices. If prospective homeowners no longer fear that prices could decline further, they will be more willing to enter the market to take advantage of reduced prices and low financing costs, and existing homeowners will feel more confident about spending. A vicious cycle could be replaced by a virtuous circle, in which stabilization in house prices supports spending, growth and jobs.Citywide employment fell by nearly 4 percent during the downturn, much less than the nationwide job loss of 6.5 percent. During the recovery, New York City has already regained half of the net jobs lost during the recession. This has happened without much help from the securities industry (Wall Street), which has been a driving force behind local economic recoveries in the past. This time, the strongest contributors to job growth have been professional and business services, leisure and hospitality.

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Buy Obama's Vineyard Retreat!: President Obama's de facto "summer White...

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Market Watch: This week President Obama addressed the...

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The “Fake it Till You Make it” President and His Triple-A Country

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All the Presidents' Homes: At right, President Obama's Chicago digs,...

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President Eisenhower's Granddaughter Sells: Anne Eisenhower, granddaughter of the nation's...

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