An Overview of The Obama Government Refinance Program

MHA_Vert_LogoSM1-150x150President Obama is the first to admit that his earlier attempts at providing housing relief have been less than successful, but he hopes this proposal will have the desired impact for individual Americans, and the economy as a whole. The goals of the proposal, known as MHA (Making Home Affordable), focus on preventing foreclosures on people’s homes, stabilizing the nation’s housing market, and improving the country’s economy. Read on to learn about this program and see about its chances of passing legislation.

The Politics of Foreclosure

For individual consumers and homeowners, the issue of housing relief is concrete and personal. People facing the loss of their family homes have little patience for the rhetoric and wrangling of politicians. For many politicians (whose own homes are secure), the matter  is more abstract—less a humanitarian issue than an opportunity to air sound bytes to replay at re-election time.

Mitt Romney, the governor of Massachusetts and recent presidential candidate, went so far as to recommend that the record-breaking foreclosure rate should be left alone to “run its course and hit the bottom.” Obama countered with the argument that it is morally irresponsible to stand by and let “struggling, responsible homeowners” bear the brunt of the nation’s economic crisis. For these individuals, the stakes are too high.

The number of individuals facing crisis are staggering. The rate of foreclosure in this country have never been this high. One quarter of Americans with mortgages (approximately eleven million all told) now owe more than the homes are currently worth, a situation known as “being underwater.”

At the same time, most banks are hesitant to offer refinancing to people whose homes are underwater. Thirty million mortgages—approximately half of all home loans in the United States—are held by non-government lenders who are not refinancing underwater homeowners.

The Proposed Legislation

If Obama’s plan passes the legislature, eligible homeowners would be given the option of refinancing mortgages through the Federal Housing Administration (FHA). The FHA itself would guarantee the refinancing loans, and the program would be funded by fees imposed on the large banks that are currently refusing to refinance risky home loans.

Many of the home loans that are now in trouble resulted from complaisant screening policies by those same banks which approved loans for consumers without even demanding proof of income sufficient to make the loan payments.

Challenges and Down Sides to the Legislation

This proposal comes with a ten billion dollar price tag, and Obama essentially intends to send the bill to the nation’s biggest banks. A fee imposed on large banks would cover the cost, but even Democrats have vetoed this approach in the past, so getting this legislation passed is likely to be rough going.

If the legislation were to pass, its impact will be limited in scope. It does not apply to those consumers who are most in danger of foreclosure: those who have borrowed money and fallen behind on the mortgage payments. To qualify for the program, a homeowner must have stayed current on the last six months’ payments, and missed no more than one payment in the previous six months.