Obama to detail broader housing refinance plan

The Obama administration is trying to fix a stubborn drag on the economy by making it easier for millions of additional homeowners to refinance their mortgages at lower interest rates even if they owe more than their homes are worth, tackling a difficult issue of vital concern in states key to President Barack Obama's re-election.

Obama on Wednesday was to draw attention to a proposal he outlined in his State of the Union address to give homeowners with privately held mortgages a shot at record low rates, for an annual savings of about $3,000 for the average borrower. Obama was detailing his plan during a visit to a Northern Virginia community center.

The program is the latest administration effort to help homeowners in the face of a massive number of foreclosures and plunging home values that have left millions of borrowers owing more than their homes are worth. The administration plan aims to ease the way toward refinancing for borrowers, who despite good credit have been unable to take advantage of lower rates because they are underwater on their loans or because banks fear they will be left taking losses.

The administration proposal faces a major hurdle in Congress. The program would cost between $5 billion and $10 billion, depending on participation, and the administration proposes to pay for it with a fee on large banks. The administration has tried unsuccessfully before to win support for such a tax on large banks.

The plan would expand the administration's Home Affordable Refinance Program, which allows borrowers with loans backed by government-affiliated mortgage giants Fannie Mae and Freddie Mac to refinance at lower rates. About 1 million homeowners have used it, well short of the 4 million to 5 million the Obama administration had expected. Moreover, many "underwater" borrowers — those who owe more than their homes are worth — couldn't qualify.

The administration estimates that 3.5 million borrowers with privately held mortgages have high enough interest rates that they would have incentive to refinance under the new plan. That's in addition to 11 million borrowers who have Fannie- or Freddie-guaranteed loans who could be eligible for refinancing under the administration's proposed changes.

The new administration plan would permit homeowners to refinance their mortgages into loans backed by the Federal Housing Administration. To qualify, borrowers with privately held mortgages would have to have no more than one delinquency in the six months preceding refinancing. Their loans would have to fall within the mortgage limits set by the FHA in their home counties.

Under the program, banks would have to reduce mortgage balances for homeowners who owe more than 140 percent of the value of their homes.

The features of the new proposal were confirmed Wednesday by a senior administration official who spoke on the condition of anonymity to discuss the program ahead of Obama's remarks. The Wall Street Journal first reported the details Wednesday.

The Obama administration also plans to announce new industry standards for mortgage servicers, a sort of "bill of rights" for borrowers that would protect them in their transactions.

Obama also is expected to announce a program that would allow the sale of foreclosed homes by Fannie Mae to investors who would then offer the properties for rental. Administration officials say there is a high demand for rental housing and such a program would also sustain neighborhoods by keeping foreclosed homes from falling into disrepair.

Though the administration's preferred means of paying for the program would be through a fee on large banks, administration officials say Obama would consider other means of paying for it.

A punctured housing bubble was at the center of the recession, prompting widespread foreclosures and leaving millions of homeowners with houses valued at less than their mortgages. Hit hardest were Nevada and Florida, two states that figure prominently in the presidential campaign and that Obama is counting on winning to secure re-election.

Under the refinancing plan, any homeowner current on his or her mortgage could take advantage of historically low lending rates. The average rate for a 30-year mortgage is 3.88 percent.

About 11 million Americans — roughly 1 in 4 with a mortgage — are underwater, according to CoreLogic, a real estate data firm.

Half of all U.S. mortgages — about 30 million home loans — are owned by nongovernment lenders.