WASHINGTON — The Obama administration announced a plan Tuesday to cut fees for up to 3 million borrowers who seek to refinance their homes.
The plan, which would apply only to loans backed by the Federal Housing Administration, could save eligible borrowers thousands of dollars each year, on average, through refinancings.
"There are real things that we can do right now that would make a substantial difference in the lives of innocent, responsible homeowners," President Obama said at an afternoon press conference at the White House. "That's true in housing and that's true in any number of different areas when it comes to ensuring that this recovery touches as many lives as possible."
"That's going to be my top priority as long as I hold this office, and I will do everything I can to make that progress," he added.
Under the administration's plan, the up-front mortgage insurance premium would be reduced to .01% for refinancings of loans originated before June 1, 2009, down from its current fee of 1%. It would also halve the annual fee for these refinancings to .55%.
For example, if an FHA borrower who has $175,000 left unpaid on their mortgage refinanced into a 4% loan, they could lower their monthly payments by more than a $1,000. By reducing the mortgage premium, such a borrower could reduce their monthly payments to about $915 per month — an additional $100 in savings, according to the plan.
"If you total all of those together, for the average borrower, it cuts more than in half the fees they would otherwise be paying," Shaun Donovan, the secretary of the Department of Housing and Urban Development, said in a conference call with reporters.
The administration hedged slightly on how many borrowers it could potentially reach with such changes to the program, estimating anywhere between 2 million to 3 million homeowners could be eligible.
"While it is always difficult to estimate participation in these programs, this will result in significant monthly savings for hundreds of thousands of families," the White House said in its plan.
However, analysts noted there could potentially be a trade-off to the administration's new plan, which doesn't require any congressional or regulatory approvals.
"We see this as a mixed bag for housing and the economy," wrote Jaret Seiberg, a senior policy analysts for Guggenheim Partners' Washington Research Group, in a note to clients. "This is a negative for housing by making it more expensive for first time buyers to purchase a home."
On the other hand, "there is some upside as the change to the refinance program should help more borrowers refinance. That could reduce defaults and leave consumers with more disposable income."
Policymakers opted to set a cut off date for eligibility, even if it might exclude a wide swath of borrowers, for two reasons, Donovan said. The first was meant to closely align this program with the Home Affordable Refinance Program for Fannie Mae and Freddie Mac loans.
"We wanted to create as much consistency across the industry as possible," said Donovan. "Second, if you look at where interest rates were -- they are declining substantially during that period, and so while there may be many borrowers above 5%, the vast majority of the 'really in the money folks,' who could significantly benefit and are likely to go on and refinance are from or for that period."
The administration also outlined steps it is taking to provide relief to military personnel and veterans by compensating those families who were wrongfully foreclosed upon, were incorrectly charged higher interest rates, or forced to sell their homes at a loss.
Any relief, according to the plan, would be in addition to the $25 billion promised under the settlement deal reached between the five largest servicers and 49 state attorneys general.
Donovan said he expects a final settlement document to be due out any day now.
"The documents are essentially completed given the number of parties we have we are gathering signatures to finalize and file a settlement," Donovan said. "I certainly expect it to be filed - that we would have all the signatures and be filed within the next few days."
The latest rollout by the administration is part of a broader strategy by the White House to eliminate a number of barriers for borrowers who have been unable to refinance their homes at historically low-interest rates.
"No red tape, no runaround from the banks," said Obama. "If you've been on time on your payments, if you've done the right thing, if you've acted responsibly, you should have a chance to save that money on your home, perhaps to build up your equity or just have more money in your pocket that you can spend on businesses in your community. That would make a huge difference for millions of American families."
In February, the president unveiled a proposal to expand access to refinancings for those borrowers whose loans are not backed by Fannie and Freddie.
The administration has argued that borrowers with good credit and clean payment histories are often rejected from refinancing applications because their mortgages are underwater.
The president has been steadfast in pushing for proposals, and bypassing Congress, to assist borrowers.
"If Congress refuses to act, I've said that I'll continue to do everything in my power to act without them," said Obama.
Last fall, the administration made significant changes to its Home Affordable Refinance Program to help more borrowers take advantage of the plan after falling short of initial estimates. Those readjustments included broadening the number of eligible mortgages to include those that are deep underwater and scrapping required warranties and representations for lenders.