Reporting from Washington — Still searching for a fix for the housing market, the Obama administration is trying to make refinancing more attractive to hundreds of thousands of homeowners by significantly reducing fees on many government-backed mortgages.
The changes could lead to a savings of about $1,000 a year on a typical mortgage refinance on top of the reduction in monthly payments from a lower interest rate, President Obama said Tuesday.
"That would make refinancing even more attractive to more families," Obama said in announcing the Federal Housing Administration plan during a White House news conference. "It's like another tax cut that will put more money in people's pockets."
The new program is open to borrowers who are current on FHA-backed mortgages funded before June 1, 2009. Administration officials estimated that 3.4 million people with such mortgages are paying an interest rate of more than 5%.
The FHA also has increased its fees, in part, to stabilize the agency's finances in the face of losses from guarantees of bad mortgages. For example, the FHA recently announced it was increasing the upfront mortgage insurance premium charges on most loans to 1.75% of the loan's value.
The higher fees have made refinancing less attractive to many homeowners at a time when mortgage rates have been at historic lows, about 3.9% for a 30-year fixed-rate loan.
"This isn't going to come close to fixing the housing market, but it is a positive step," Jaret Seiberg, senior financial policy analyst at Guggenheim Partners in Washington, said of the fee reduction plan. "You have borrowers for whom it makes no sense to refinance because their FHA premium will increase so dramatically."
Under the new plan, the FHA will nearly eliminate the required upfront fee, reducing it to just 0.01%, or $10 for every $100,000. The FHA also will cut its annual fee on refinanced mortgages for qualified borrowers in half, to 0.55% of the loan balance
Along with the fee reductions, the administration said it was taking steps to help military members whose homes might have been improperly foreclosed on by the five largest mortgage servicers: Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.
The servicers agreed to conduct a review, overseen by the Justice Department, of all foreclosures of military members since 2006. Violations of federal restrictions on foreclosures of the homes of active-duty service members will result in servicers paying any victim $116,785 plus lost equity in the home.
The servicers also agreed to review mortgages to determine whether any people in the military were charged more than 6% interest after making a valid request to lower the rate.
Such a rate reduction is required under the Servicemembers Civil Relief Act. Violations would result in an award to borrowers of four times the amount overcharged, plus interest.