Obama pushes plan to help homeowners with underwater mortgages

President Obama on Wednesday announced a string of proposals aimed at helping to rejuvenate the sagging housing market, including one plan that would allow responsible homeowners to take advantage of historically low interest rates.

As the housing market enters its fourth year of high foreclosures and sluggish sales, the president said his proposal — targeted at the middle class — would help homeowners save about $3,000 a year, without “red tape” or a “runaround” from banks.

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Speaking to a small crowd at a community center in Virginia, a battleground state the president hopes to win in November, Obama said his plan would help people whose home mortgages have gone underwater.

“This housing crisis struck right at the heart of what it means to be middle class in America: our homes,” Obama said. “The places where we invest our nest eggs, the place where we raise our family, plant roots in our communities, the place where we build memories.

“We need to do everything we can to repair the damage and make responsible families whole. Everything we can.”

While Obama acknowledged that it will “take more time than any of us would like” for this housing market to rebound from the crisis, he made an indirect attack at GOP front-runner Mitt Romney, who has said that the government should not try and stop the foreclosure process. “Let it run its course and hit the bottom,” Romney told the Las Vegas Review-Journal last year.

“It is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom,” the president said in his remarks.

As part of the plan, Obama will ask Congress for a tax on larger financial institutions to help homeowners refinance into government-insured Federal Housing Administration loans. Obama also proposed a Homeowners Bill of Rights — or as he called it, “one straightforward set of common sense rules” — that would allow families to know exactly what they’re getting when they’re shopping for a home.

Congress has refused similar proposals made in the past few years. But in his speech Wednesday, Obama renewed his call for action on Capitol Hill.

“We’re gonna need Congress to act,” he said.

But House Speaker John Boehner (R-Ohio) wasn’t having any of it.

“How many times have we done this?” Boehner asked Wednesday at a news conference. “We’ve done this at least four times, where there’s some new government program to help homeowners who have trouble with their mortgages. None of these programs have worked. I don’t know why anyone would think this idea is going to work.”

Rep. Spencer Bachus (R-Ala.), chairman of the House Financial Services committee, said the Obama proposal is "not a serious plan to help the nation’s housing market."

In his speech, Obama acknowledged that a housing plan his administration put together a couple of years ago hadn’t worked “at the scale that we had hoped.”

“Mortgage rates are as low as they’ve been in half a century, and when that happens homeowners usually flock to refinance their mortgages,” he said. “But this time too many families haven’t been able to take advantage of the low rates because falling prices locked them out of the market.”

The president said his new, more aggressive action will help put money back in the pockets of Americans and will be able to help homeowners rebuild equity in their homes, “which will help most underwater homeowners come back up for air more quickly.”

Obama also touted the work of Richard Cordray, whom he recently appointed to head the new Consumer Financial Protection Bureau, saying that his efforts will make applying for a mortgage a more seamless process wherein terms are clear and fees are transparent.

The president announced a new plan to turn more foreclosed homes into rental properties, because, as he said, “that empty house or for sale sign down the block can bring down prices for an entire neighborhood.”

“These steps will make a difference,” he said.

Still, Obama warned, “no program or policy will solve all the problems in a multitrillion-dollar housing market.”

“The heights the housing bubble reached before it burst, those were unsustainable,” he said. “It will take time to fully recover.”

Speaking to reporters at the White House on Wednesday, Housing Secretary Shaun Donovan said a "broad scale refinancing effort is one of the most important things we can do."

"There's broad recognition that this would be good for the housing market and good for the economy," he said.

Fleshing out the specifics of the plan, the Housing secretary said that Obama’s proposal would allow borrowers who have homes that are underwater to take out a separate lower-interest rate loan through the Federal Housing Finance Agency and use it to pay off their existing loan.

Donovan said the administration would be open to a discussion with Congress about the "best way to make sure the cost of this is covered.

But Donovan would not discuss the administration's chances of getting the proposal to pass Congress when others had failed in years past — with a Democratic-controlled House.

"I'm the Housing secretary, I"m going to leave what's possible in Congress ... to others," he said. "I'm going to leave the election-year politics to others."

—This story was updated at 1:46 p.m. and again at 4:23 p.m.

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