Obama plan to help homeowners spur housing recovery
U.S. President Barack Obama holds up a mortgage application and delivers remarks on the economy Feb. 1, 2012 at the James Lee Community Center in Falls Church, Va. Obama spoke on the mortgage principle reduction plan he had mentioned in his State of the Union address.
Kai Ryssdal: Today the president filled in the details of his most recent mortgage relief plan. He gave a thumbnail sketch back at the State of The Union. We now know he wants to spend as much as $10 billion to help homeowners refinance their mortgages into cheaper interest rates. Even families whose homes are underwater -- that is, not worth the mortgage they owe -- would, for the first time, be eligible.
And the White House says that would help more than just the housing market. Marketplace's John Dimsdale reports.
John Dimsdale: Underwater homeowners can’t take advantage of record-low interest rates because lenders won’t refinance when a home’s value is less than the loan. The president is proposing to expand government backing for underwater refinancings, paid for with an extra fee on big banks. He says the average family’s savings of $3,000 a year will ripple through the entire economy.
Barack Obama: You’ll be able to save hundreds of dollars a month that you can put back in your pocket. Or you can choose those savings to rebuild equity in your homes which will help most underwater homeowners come back for air more quickly.
The White House says homeowners who don’t have access to cheaper mortgages are less likely to spend and become a drag on the economy. But while the government incentives for refinancing saves money for homeowners, it won’t be a total win for the economy.
Mike Moran at Daiwa Securities America says there will be a corresponding loss for lenders.
Mike Moran: Because there’s some investor somewhere in the economy that’s earning the interest on that mortgage and they’re going to be getting less interest income than they were before.
Between those investors and struggling homeowners, who’s more likely to spend that income right away? For Housing Secretary Shaun Donovan, that’s a no-brainer.
Shaun Donovan: For the average family, $3,000 more a year in their pocket every year they pay their mortgage, is like a significant tax cut and would boost consumer spending.
And, he says, makes it more likely that family can afford their monthly mortgage payments, avoiding more foreclosures in the future.
In Washington, I'm John Dimsdale for Marketplace.