Obama administration ramps up mortgage refinancing effort
Original Post Date: October 24, 2011
By: Don Lee
Reporting from Washington—
The Obama administration, worried that the housing crisis is strangling the economic recovery, is stepping up efforts to aid the battered market as another wave of home foreclosures threatens to drive values down further and rattle consumer confidence again.
But the administration’s piecemeal approach — giving temporary reprieves to the jobless, converting empty homes into rental properties, allowing more people to refinance mortgages — isn’t going to help much, said industry leaders and even some lawmakers in the president’s own party.
What’s needed, they said, is a grand plan, such as an across-the-board reduction of the principal homeowners are carrying on their mortgages.
“Abysmally too little is being done to deal with the problem,” said Rep. Dennis Cardoza (D-Atwater), who recently led a contingent of California lawmakers in denouncing the administration’s handling of the crisis.
He said 70% of the homeowners in his district are underwater on their mortgages, meaning they owe more than their homes are worth. And a map of San Joaquin County in his office shows clusters of red where constituents have lost their homes to foreclosures.
To counter such criticism, the White House hopes to announce changes to its main refinancing program within days to make it easier for more homeowners — perhaps millions more — to participate. Agency officials are looking at reducing fees, streamlining processes and raising the the loan-to-home value ratio cap, which is now at 125%, to be eligible for refinancing.
The administration hopes that the “amped up” effort, as one aide to President Obama put it, will help turn the tide. But aides and congressional staff members acknowledged that the economic and political problems afflicting housing recovery efforts remain daunting.
The government doesn’t have the money to rescue every troubled homeowner, lenders are reluctant to take on more risk or add to their mortgage losses and sharp ideological divisions — whether a major stimulus is needed, for instance, or any money should be spent — are hamstringing the kind of quick, large-scale action that some critics want.
Even today’s historically low interest rates aren’t helping.
Underwater borrowers can’t qualify for new loans or refinancings even if they are current on payments. And many would-be buyers are sitting on their hands, spooked by the high numbers of foreclosures and vast tracts of vacant homes.
In the meantime, banks are stepping up efforts to foreclose on borrowers in default. In the three months that ended Sept. 30, notices of default, the first formal step in the foreclosure process, jumped nearly 26% from the previous quarter, according to DataQuick, a San Diego real estate information service.