WASHINGTON President Barack Obama said on Thursday he is seeking to broaden U.S. homeowners' access to mortgage refinancing in a plan to help the ailing housing market and put money back in the pockets of borrowers needing help locking into record low rates.
"We're going to work with Federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent," Obama said in his speech to Congress on Thursday in which he unveiled a $447 billion jobs package.
Obama said the plan would provide aid to "responsible homeowners" and would be "a step that can put more than $2,000 a year in a family's pocket, and give a lift to an economy still burdened by the drop in housing prices."
The White House officials said the U.S. Treasury was having talks with both Fannie Mae and Freddie Mac and their regulator -- the Federal Housing Finance Agency -- on ways to broaden refinancings. The aim is to is to "remove the barriers that exist in the current refinancing program."
"We're trying to do every single thing we can on housing," one U.S. official said, adding the administration was "working around the clock" on the refinancing initiative.
"We're hopeful that over the next ... several weeks that we will have progress in that area," the official said.
While mortgage rates are at record lows, many U.S. homeowners have been shut out of the refinancing process because they owe more than their homes are worth or have less-than-perfect credit histories. The average rate on a 30-year fixed loan was 4.12 percent last week, the lowest level in six decades, according to Freddie Mac.
"Refinancing puts money back in the pockets of consumers without costing the government directly in tax revenue," said David Abromowitz, a Senior Fellow at the Center for American Progress. "
The barriers really have a lot to do with concerns about how investors in the mortgage market might react. You are weighing costs and benefits."
Some argue that changing the rules for refinancing would put Fannie and Freddie at greater risk of financial losses but the administration contends it could bolster the agencies by strengthening the overall housing market.
The refinancing initiative under consideration by the Obama administration would need final approval from the acting head of the Federal Housing Finance Agency, Edward DeMarco. Those close to DeMarco say he is acting as an independent regulator with the goal of conserving the assets at Fannie and Freddie, a position he has staunchly defended before lawmakers since the two firms were taken over by the government three years ago.
Fannie and Freddie, combined with the Federal Housing Administration (FHA), support about 90 percent of the mortgage market. The Congressional Budget Office estimated in a recent report that defaults prevented by a refinancing plan would save the FHA and the two government-sponsored enterprises about $3.9 billion.
Offsetting any savings for lower monthly payments for homeowners are objections from holders of mortgage bonds, who would take a hit if loans are paid off early. The CBO said that a government push to spur refinancing would cause private investors to lose about $13 billion to $15 billion.
The nonpartisan body estimated a government refinancing initiative would likely provide $7.4 billion in savings for lower mortgage payments in the first year. The plan could amount to refinancing of 2.9 million mortgages in its first year, totaling $428 billion, and would prevent 111,000 defaults that would otherwise occur, the CBO said.
However, the CBO argued that estimated benefits would be "small relative to the size of the housing market, the mortgage market, and the overall economy."
(Writing by Margaret Chadbourn and Caren Bohan; Editing by Eric Walsh)