Monday, Oct. 24, 2011 | 7:41 p.m.
The Five Changes in Obama’s New Housing Plan
- 1. No limits on who is eligible for refinancing. Prior to this, if the size your loan was more than 125 percent of the value of your home, you were out of luck.
- 2. Elimination or lowering of fees for refinancing, title insurance, lien processing, and closing costs. Also in most cases, appraisals won’t be necessary to refinance: the government will work off a automated calculation.
- 3. Streamlining “representations and warrantees,” which are necessary to transfer loans from one bank to another. Government believes this will enhance confidence and competition between banks for loans, which will create incentives for banks to renegotiate mortgages.
- 4. Major mortgage insurers will transfer coverage from an old loan to a refinanced loan automatically.
- 5. Re-subordination of second liens will become automatic: so if you have a second mortgage on your home that you want to keep while you refinance the first, that’s now much easier.
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It’s no accident that President Barack Obama timed the release of his most robust plan yet to tackle the home mortgage market, the destruction of which brought down the economy and protracted weakness of which continues to keep it depressed, with his trip to Las Vegas.
The region, after all, leads the country in bad mortgages — partially because mortgages in Las Vegas were so far underwater that they didn’t qualify for help from Washington.
That’s the biggest change in the five-point plan the Obama administration announced Monday, and which the president explained to a neighborhood in East Las Vegas on his sweep through the Las Vegas Valley.
“The barrier will be lifted that prohibits responsible homeowners from refinancing if their home values have fallen so low that what they owe on their mortgage is 25 percent higher than the current value of their home,” Obama said. “This is critically important for a place like Las Vegas, where home values have fallen by more than 50 percent over the past five years.”
To continue with the President’s example: before this change, if person with a $250,000 mortgage at six percent interest sees the value of their home fall below $200,000, they were considered too underwater for the federal government’s intervention programs. That’s partly why Nevada only saw a 2.6 percent success rate under the Obama administration’s Home Affordable Modification Program, better known as HAMP.
“That’s going to change,” the president said. “If you meet certain requirements, you will have the chance to refinance at lower rates, which could save you hundreds of dollars a month, and thousands of dollars a year on mortgage payments.”
For its economic plight, Las Vegas has now been used as the backdrop by both the incumbent Democratic president, and the front runner among Republican presidential hopefuls, Mitt Romney.
Their lines on housing couldn’t be more dissimilar. Romney has been taking constant heat from Democrats since he told the editorial board at the Las Vegas Review-Journal that he thought the foreclosure crisis should be allowed to “bottom out,” and that the free market would correct the remaining problems.
Obama, on the other hand, seized his Las Vegas pulpit to commiserate with the plight of families who his economic policies haven’t yet helped.
“This is a painful burden for middle-class families. And it's also a drag on our economy,” Obama said of the lingering foreclosure crisis. “When a home loses its value, a family loses a big chunk of their wealth. Paying off mortgage debt means that consumers are spending less and businesses are making less and jobs are harder to come by. And as long as this goes on, our recovery can't take off as quickly as it would after a normal recession.”
But despite how their messages differ, at the end of the day, the president and the front-running Republicans have a common vision as to what will truly ultimately fix the housing market: jobs.
They create those jobs in radically different ways.
The 59-point job creation plan Romney laid out in North Las Vegas last month is lengthy, but essentially boils down to a few principles: reduce taxes, cut spending, roll back regulations and allow drilling — and the job-creators will create jobs, wherever the free market determines the jobs ought to be created.
Obama’s program is a lot more direct, and designed in nature like a stimulus proposal: he wants to put hard money, about $447 billion worth, toward employing construction workers, teachers, fire fighters and police. The spending in the proposal would be paid for with a 5.6 surtax — a change made by Nevada Senator Harry Reid that was not part of the original proposal, but which Obama had clearly thrown his full weight behind.
He in fact spent more time stumping for that proposal than for his new housing plan in Las Vegas, both in East Las Vegas, at the home of the Bonilla family with whom he visited Monday afternoon, and at a $1,000-per-plate fundraiser at the Bellagio.
"We've got huge challenges in places like Nevada, we've got a jobs bill out there that is paid for and addresses those challenges, the question is, why despite all the support, despite all the experts who say this jobs bill couldn't come at a more important time ... why have Republicans in Washington said no?” Obama said at the fundraiser Monday afternoon.
“For somebody making $1.1 million a year, that’s [the surtax] an extra $500,” he continued. “Most people making more than $1 million, if you talk to them, they'll say, I'm willing to pay $500 extra to help the country. They’re patriots. They believe we’re all in this thing together. But all the Republicans in the Senate said no.”
Obama called out Nevada’s Republicans specifically in East Las Vegas for voting against his jobs bill, while praising Reid’s efforts.
"Your senator, Majority Leader Harry Reid, he's been fighting nonstop to help get the economy going but he's not getting some help from some members of the Nevada delegation,” Obama said. “So we need them to get their act together.”
Obama stressed though that he wasn’t about to wait for that to happen.
“I’m here to say to all of you — and to say to the people of Nevada and the people of Las Vegas — we can’t wait for an increasingly dysfunctional Congress to do its job,” Obama told the neighborhood residents gathered at the corners of La Placita and Madre Grande in East Las Vegas. “Where they won’t act, I will.”
But his actions are likely not enough to tackle the scope of the local problem.
In Las Vegas, most mortgages are underwater, and the average home loan is over 140 percent of the value of the property — higher than the limit allowed under the old rules.
While the president’s new policy does include the average Nevadan homeowner with an underwater loan, it doesn’t do what the people have been clamoring for.
Obama’s message on housing stops short of the fix economists and lawmakers have advocated: a policy that would force banks to write down the principal of mortgages instead of simply renegotiating payments.
“Even if you might get a mortgage modification, people are running away from their home,” said Yvette Williams, chair of the Clark County Democratic Black Caucus, who came to hear the president speak at the Bellagio fundraiser. She said underwater homeowners in Nevada needed a way to reduce the principal in their home loans. “But we’re building ... sometimes you have to take a step in the right direction. It’s better than what we had.”
The administration’s new mortgage assistance is only available to homeowners who are current — a provision which means that the several Nevadans who, because they were out of options in the old system, intentionally defaulted on their loans as a way of pushing banks into renegotiating their loans, may be out of luck.
But to those who might fall through such cracks, the administration is giving a rising lifts all boats-esque answer.
“This program and a series of other steps that we’re taking are aimed attacking the reduction of negative equity,” Housing and Urban Development secretary Shaun Donovan said in a phone call with reporters this morning; “negative equity” is the amount of the principal loan that goes above and beyond the value of the home.
Those steps are the various pieces of Obama’s jobs bill, which Donovan cited as “important steps to reducing negative equity.” Donovan also stressed the importance of jobs to improving the overall housing market: “When home prices grow, negative equity will shrink.”