President Obama, fighting criticism that he was slow to respond to the housing crisis, is ramping up efforts this week to promote legislation aimed at keeping struggling Americans in their homes.
He called on Congress to pass a package of bills offering more opportunities for homeowners to save money by refinancing mortgages at lower interest rates. The legislation would expand the pool of borrowers eligible for refinancing.
Facing an uphill battle to get the backing of Congress, the administration has dispatched Housing and Urban Development Secretary Shaun Donovan on a multi-state trip to promote the legislation. Donovan will meet Wednesday with Los Angeles Mayor Antonio Villaraigosa at City Hall, as well as with Sen. Dianne Feinstein (D-Calif)., who sponsored one of three refinance bills backed by the president.
"There are a lot of families out there whose homes are underwater; they owe more than the house is worth because housing values dropped so precipitously. And they're having trouble refinancing," Obama told reporters Monday. "We're going to be pushing Congress to see if they can pass a refinancing bill that puts $3,000 into the pockets of the average family who hasn't yet refinanced their mortgage."
Obama wants to convince voters that his policies helped the nation rebound from the slumping housing market, financial crisis and recession. Meanwhile, Republican challenger Mitt Romney said he wants the government to let the foreclosure process run its course and find a bottom.
The latest refinance campaign comes after many of the administration's efforts to stem foreclosures and aid struggling borrowers stumbled.
Only about 1 million homeowners have received permanent loan modifications through administration housing initiatives, which officials had hoped would modify 3 million to 4 million mortgages through 2012. There are about 11 million underwater homes in the nation.
Federal bailout funds that went to the so-called hardest-hit states to develop their own foreclosure programs — California was the largest recipient — have gone largely unspent. And a $25-billion national mortgage settlement among the states, the federal government and the nation's largest banks reached only a narrow slice of borrowers.
This month, an administration plan to incentivize Fannie Mae and Freddie Mac to write down underwater mortgages failed. The plan, if it had succeeded, would have provided what some economists argue could have been the strongest medicine for housing.
The plan would have allowed Fannie and Freddie, which own or back about 60% of the nation's mortgages, to lower the principal for underwater homeowners as a way of reducing foreclosures. But the regulatory agency that oversees the housing finance giants ruled that principal reductions would cost taxpayers money and wouldn't improve the ability of homeowners to avoid foreclosure.
The latest refinancing legislation might have a tough time amid Democratic and Republican wrangling. Members of Congress are expected to weigh the legislation after they return from an August break.
"Frankly were it not for an election — and an interest of some members to just stand in the president's way on everything — I think we'd see this passed easily," Donovan told The Times in an interview.
Underwater mortgages remain an obstinate barrier to economic growth as people who remain stuck in homes that have fallen below the value of their debts are left unable to chase new opportunities elsewhere. These negative-equity borrowers are also at higher risk for foreclosures.
The vast majority of underwater U.S. homeowners — 3 out of 4 — were stuck with high-interest mortgages, increasing the precariousness of their financial situations, a report last year by research firm CoreLogic showed.
Getting those borrowers into lower-cost loans could be one of the few effective ways left of addressing housing quickly, economists said. If more people were allowed to refinance, they could plow that money back into their homes, reducing mortgage debt, or spend the extra money on goods and services, boosting the economy.
"Facilitating more refinancing is the best way to help the housing market and the broader economy quickly," said Mark Zandi, chief economist ofMoody'sAnalytics. "The reduction in mortgage payment is akin to $2,500 to 3,000 a year, so that is a pretty sizable tax cut."
A bill by Sens. Barbara Boxer (D-Calif.) and Robert Menendez (D-N.J.) is aimed at expanding the Home Affordable Refinance Program to more Fannie and Freddie borrowers and reducing costs, as is legislation by Feinstein. The Feinstein legislation also aims to expand refinancing to underwater borrowers who have privately owned loans by allowing them to refinance into loans backed by the federal government.
A separate proposal by Sen. Jeff Merkley (D-Ore.) would try to expand refinancing to privately owned mortgages in another way: It would create a trust that issues low-rate mortgages for underwater loans and sells them to investors.