President Obama speaks at the James Lee Community Center in Falls Church,… (Saul Loeb, AFP/Getty Images )
Reporting from Washington — Distancing himself from Republicans on housing issues, President Obama pitched a $5-billion to $10-billion plan to help a key segment of struggling homeowners — those still making monthly payments, but on underwater mortgages.
Obama proposed Wednesday to help about 3.5 million people with good credit who are unable to refinance at historically low rates because their homes are worth less than their mortgages.
He argued that those homeowners — and the country — couldn't afford to let the housing market bottom out, as many Republicans, including presidential candidate Mitt Romney, have advocated.
"This plan … will not help the neighbors down the street who bought a house they couldn't afford, and then walked away and left a foreclosed home behind," Obama said. "It's not designed for those who've acted irresponsibly, but it can help those who've acted responsibly."
His administration took steps last fall to help as many as 11 million underwater homeowners whose loans were backed or owned by Fannie Mae, Freddie Mac or the Federal Housing Administration. Now Obama wants to expand that program to the remaining underwater homeowners, whose loans are owned by banks or investors.
But the refinancing plan is strongly opposed by many congressional Republicans and faces an uphill climb in an election year. They contended that the administration's previous housing plans have been unsuccessful and that the market needs to settle on its own.
"How many times have we done this?" House Speaker John A. Boehner (R-Ohio) said. "I don't know why anyone would think this next program would work."
Obama also proposed to pay for the refinancing plan with a new fee he wants Congress to levy on large banks. The financial industry strongly opposes that fee, which Obama has been unable to push into law since first proposing it in 2010.
Such a fee could delay the housing recovery because it would "directly reduce lending capacity and banks' ability to lend" by up to $100 billion, said Frank Keating, president of the American Bankers Assn.
Obama's proposal appeared designed to draw a sharp distinction between him and Republicans on help for struggling homeowners.
In October, Romney told the Las Vegas Review-Journal that the housing market needed to "hit the bottom" before it could recover, and he has since talked about the need for foreclosures to run their course.
Obama alluded to those comments Wednesday, noting that more than half of all homeowners in Las Vegas were underwater.
"It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom," Obama told a crowd at a Falls Church, Va., community center. "I refuse to accept that, and so do the American people."
The administration released 10 pages of details on the refinancing proposal as well as other steps to help the housing market, such as streamlined refinancing requirements and a homeowner bill of rights with simple disclosure forms and protection from inappropriate foreclosures.
To be eligible, homeowners would have to be current on their mortgage payments for the last six months and have missed no more than one payment in the previous six months. Homeowners also would need a credit score of at least 580.
Also, homeowners would have to be no more than 40% underwater on the loan, owing, say, $140,000 on a home now worth only $100,000. Obama also proposed that Congress set new guidelines for loans that are more deeply underwater.
To speed approvals, lenders would need only to confirm that the homeowner has a job. Borrowers would not need to submit tax returns or get a new appraisal of the property. Unemployed homeowners also would be eligible for the refinancing plan, but would be required to provide more detailed financial information.
The program would be open only to mortgages below the FHA's conforming loan limits, which are $271,050 in low-cost areas and $729,750 in Southern California and other high-priced markets. By refinancing, borrowers would save an average of $3,000 a year. The cost of the program would be to cover the increased risks for the FHA, which would back the refinanced loans.
Some Republicans said it was irresponsible to add new risk to the FHA, whose finances are already in trouble and could require a federal bailout.
But Barry Zigas, director of housing policy for the Consumer Federation of America, said the refinancing proposal was "a sensible and modest federal 'helping hand' that is long overdue."
Housing and Urban Development Secretary Shaun Donovan said the White House was open to finding a different method, other than the bank fee, to pay for the refinancing plan. But he said administration officials believed banks should help pay for the plan because they helped cause the housing crisis.
Bert Ely, an independent banking analyst, said the plan could not pass Congress and appeared to be a political move by Obama to put heat on Republicans, particularly Romney.
"Is this really to help the housing market? Or is this really to give the president something to talk about on the campaign trail?" Ely said.
He said the plan probably would not do much to reduce foreclosures because it targeted homeowners who have been making their payments. And he questioned why the administration would want to reduce the amount of paperwork required for refinancing.
"It's ironic that the whole reason we got into this mess was, in part, because of sloppy underwriting and misrepresentations about the ability to pay, and they turn right around and put a proposal on the table which is essentially the same thing," Ely said.
Times staff writers Lisa Mascaro and Kathleen Hennessey contributed to this report.