It’s clear that the depressed housing marketing is going to continue to place a drag on the economic recovery. Recognizing this, President Obama recently proposed a new mortgage refinancing program that would provide relief to millions of homeowners who would benefit from refinancing their mortgages with high interest rates to something that’s closer to today’s low rates. Americans have been having a difficult time taking advantage of historically low rates because their credit has been damaged or their home is now worth less than what they owe.
Last year, programs were enacted to assist homeowners whose mortgages were held by Fannie Mae or Freddie Mac. However, those whose mortgages were not held by Freddie Mae or Freddie Mac were out of luck. With this new proposal, that stands to change. Under Obama’s proposal, the Federal Housing Administration would be given the authority to refinance the mortgages of homeowners who are current on their loan payments, have a credit score above 580, and are currently paying a high interest rate. The estimated cost of the program is $5-10 billion, which would be funded by fees imposed on banks.
I think that overall, we aren’t going to see a complete recovery until the housing market settles down. There are still too many Americans underwater on their mortgage. Others are treading water, barely staying afloat. Once the housing market makes a significant turn for the better these people will be able to return to their normal spending and saving habits. The current proposal seems to have a low likelihood of passing, but I’m still going to root for it.