President Barack Obama on Monday responded to growing concerns about the nation’s battered housing market by unveiling a plan to help reduce the monthly mortgage payments of homeowners who owe more than their properties are worth.
As he met with distressed homeowners in Las Vegas, the foreclosure capital of the nation, Obama announced steps to allow “underwater” borrowers to refinance their mortgages at ultra-low rates near 4%.
The move comes amid a growing consensus that the nation’s moribund housing market is holding back the economic recovery. Home values are hovering at eight-year lows, and more than 10 million people are underwater, or owe more than their homes are worth.
“It’s a painful burden for middle-class families,” Obama said. “And a drag on our economy.”
The administration’s proposal underscored the scope of the problem as well as the limits of public policy in addressing it.
By reducing monthly payments, officials hope to free up cash for consumers to spend elsewhere. According to housing regulators, 1 million borrowers might be eligible, but that is only one-tenth of the number of homeowners who need help.
And while estimates cited by the administration suggest the average homeowner might save $2,500 per year, other projections from housing regulators were in the range of $312 per year.
The plan represents the president’s latest initiative to address the housing crisis. Under the programme, there’s no limit to how much a borrower can owe. Fees will be reduced. And banks that refinance loans will be largely cleared of liability.
Borrowers’ debt will be especially reduced if they take on a mortgage with a duration of 20 years or less. Only borrowers whose loans are owned or guaranteed by Fannie Mae and Freddie Mac will be eligible. In addition, borrowers must not have missed any payments in the past year and must have taken out their loans before June 1, 2009, though exactly when will depend on the lender.
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