President Barack Obama says that his new plan of reducing home loan rates will help underwater but non-delinquent homeowners through a more affordable and easier loan refinancing program. Republicans, however, say that Obama’s plan is not very different from previous housing rescue programs that largely failed. They insist that what the country needs is a massive job creation program, which can be achieved by providing massive funds to the energy and infrastructure development sectors.
Which do you think is the better plan? Which will impact the financial conditions of Americans substantially more and energize the economy faster?
Obama’s proposal would enable underwater homeowners to refinance their privately-held loans through the FHA, which would then guarantee the loans and would assume the risk in case of default. Obama expects to help 3.5 million homeowners with his new plan, and plans to impose a fee on the country’s largest banks to finance this plan. Since this program entails an expansion of the authority of the Federal Housing Administration (FHA), it needs to be approved by Congress.
Republican representatives have been knocking down Obama’s plan, arguing that the FHA has its own financial problems and insisting that the additional burden could lead the agency into collapse. They said they’re wondering why the Obama administration continues to pursue expensive housing programs when similar programs in the past have vastly failed.
Expectedly, Housing and Urban Development Secretary Shaun Donovan defended his boss’s plan. He said that the main insurance fund of the FHA would be protected and that funding for the program would be sourced from bank taxation. He further explained that the program is offered to homeowners who have kept their accounts current. Administration officials estimate that the program could cost from $5 billion to $10 billion.
According to initial details of the plan, the new home loan refinancing program will target private mortgages – those not backed by Fannie Mae and Freddie Mac. Eligible borrowers would be those who are occupying the homes they purchased with the mortgage, who have paid their monthly amortizations over the six-month period prior to refinancing, and who have been delinquent only once during the prior six-month period.
Together with this loan refinancing plan are other proposals to further improve the housing market. These include the expansion of the HARP program to benefit borrowers with more than 20 percent equity in their homes, the standardization of foreclosure and loan modification processes undertaken by mortgage servicers, and the conversion of foreclosure properties into rentals through bulk sales to real estate investors.
So, which then is more effective? Home loan refinancing or job creation? Or do we have to choose?