September 09, 2011

In his September 8 address to a joint session of Congress, President Obama asked Congress to enact quickly his new legislative proposal to increase jobs and promote economic recovery, the American Jobs Act.  On housing, Obama said he plans to "work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent," and to pursue $15 billion for putting people to work rehabilitating vacant and foreclosed homes and businesses under a new initiative called, "Project Rebuild."

The American Jobs Act, which also includes proposals to reduce payroll taxes, invest in infrastructure, fund transportation projects, modernize schools, extend unemployment benefits, hire teachers, and encourage businesses to hire unemployed workers, would cost $447 billion, $253 billion in tax cuts and $194 billion in new spending. 

Obama also said he would release a deficit-reduction plan on September 19 that would cover the cost of his jobs plan and also “stabilize our debt in the long term.”  He said the tax and entitlement reform legislation would propose changes to the tax system to end loopholes, lower the corporate tax rate, and increase taxes for the wealthy.

Obama called for the job plan’s cost to be fully offset, proposing that the Joint Select Committee on Deficit Reduction increase its savings total by more than the cost of his plan.  The recent Budget Control Act of 2011, which increased the debt limit, created what has come to be known as the "Super Committee" and charged it with submitting to Congress by November 23 a plan for achieving up to $1.5 trillion budget savings over the next ten years.
The Administration’s fact sheet says the following about its refinancing proposal:

Helping More Americans Refinance Mortgages at Today’s Historically Low Interest Rates:  The President has instructed his economic team to work with Fannie Mae and Freddie Mac, their regulator the FHFA, major lenders, and industry leaders to remove the barriers that exist in the current refinancing program (HARP) to help more borrowers benefit from today’s historically low interest rates.  This has the potential to not only help these borrowers, but their communities and the American taxpayer, by keeping borrowers in their homes and reducing risk to Fannie Mae and Freddie Mac.”

HARP, the Home Affordable Refinance Program, allows homeowners with Fannie Mae and Freddie Mac mortgages to refinance their loans if they have not been able to obtain a traditional refinance because their home’s value has declined.  To be eligible, a homeowner must have a Fannie Mae or Freddie Mac loan originated before June 2009, be current on their mortgage payments, have a first mortgage that does not exceed 125 percent of the home’s current market value, be able to make the new loan payments, and benefit from the refinancing through increased affordability or stability.

Options under consideration to modify HARP include removing the eligibility date, allowing homeowners with a HARP-refinanced loan to refinance again, eliminating the 125 percent loan-to-value cap, waiving Fannie Mae and Freddie Mac’s risk-based loan guarantee fees, streamlining the application process and reducing closing costs, and indemnifying lenders from buy-back policies Fannie Mae and Freddie Mac currently apply to loans they purchase or guarantee.

The Act’s home refinancing proposal would not require legislation but would need to be approved by Fannie Mae and Freddie Mac's independent regulator, the Federal Housing Finance Agency.  This afternoon, FHFA Acting Director Edward DeMarco published a statement saying that, FHFA “has been analyzing these issues and discussing with a range of stakeholders various 'frictions' in HARP and what may be done to ease those frictions.  The final outcome of this review remains uncertain but FHFA believes this undertaking is worthwhile and consistent with our conservator responsibilities.”

On Project Rebuild, the Administration’s fact sheet says:

Project Rebuild: Putting People Back to Work Rehabilitating Homes, Businesses and Communities.  The President is proposing to invest $15 billion in a national effort to put construction workers on the job rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses.  Building on proven approaches to stabilizing neighborhoods with high concentrations of foreclosures, Project Rebuild will bring in expertise and capital from the private sector, focus on commercial and residential property improvements, and expand innovative property solutions like land banks.  This approach will not only create construction jobs but will help reduce blight and crime and stabilize housing prices in areas hardest hit by the housing crisis.”