Obama administration ramps up mortgage refinancing effort

By Don Lee, Los Angeles Times
The White House hopes by the end of the month to announce changes that will make it easier for more homeowners — perhaps millions more — to participate.

 Reporting from Washington—
The Obama administration, worried that the housing crisis is strangling the economic recovery, is stepping up efforts to aid the battered market as another wave of home foreclosures threatens to drive values down further and rattle consumer confidence again.
But the administration's piecemeal approach — giving temporary reprieves to the jobless, converting empty homes into rental properties, allowing more people to refinance mortgages — isn't going to help much, said industry leaders and even some lawmakers in the president's own party.
What's needed, they said, is a grand plan, such as an across-the-board reduction of the principal homeowners are carrying on their mortgages.
"Abysmally too little is being done to deal with the problem," said Rep. Dennis Cardoza (D-Atwater), who recently led a contingent of California lawmakers in denouncing the administration's handling of the crisis.
He said 70% of the homeowners in his district are underwater on their mortgages, meaning they owe more than their homes are worth. And a map of San Joaquin County in his office shows clusters of red where constituents have lost their homes to foreclosures.
To counter such criticism, the White House hopes to announce changes to its main refinancing program within days to make it easier for more homeowners — perhaps millions more — to participate. Agency officials are looking at reducing fees, streamlining processes and raising the the loan-to-home value ratio cap, which is now at 125%, to be eligible for refinancing.
The administration hopes that the "amped up" effort, as one aide to President Obama put it, will help turn the tide. But aides and congressional staff members acknowledged that the economic and political problems afflicting housing recovery efforts remain daunting.
The government doesn't have the money to rescue every troubled homeowner, lenders are reluctant to take on more risk or add to their mortgage losses and sharp ideological divisions — whether a major stimulus is needed, for instance, or any money should be spent — are hamstringing the kind of quick, large-scale action that some critics want.
Even today's historically low interest rates aren't helping.
Underwater borrowers can't qualify for new loans or refinancings even if they are current on payments. And many would-be buyers are sitting on their hands, spooked by the high numbers of foreclosures and vast tracts of vacant homes.
In the meantime, banks are stepping up efforts to foreclose on borrowers in default. In the three months that ended Sept. 30, notices of default, the first formal step in the foreclosure process, jumped nearly 26% from the previous quarter, according to DataQuick, a San Diego real estate information service.
Additionally, a likely national settlement over complaints about banks filing faulty paperwork to take back homes should clear the way for an additional 400,000 foreclosures in coming months, according to Moody's Analytics, an economics research firm.
Moody's predicts that foreclosures will rise next year to a record 1.5 million, or a hefty 30% of all sales of previously owned homes.
The new crush of distressed properties will further dampen home values, especially in hard-hit Florida, California and Nevada, inflicting more damage on the broader economy and job growth.
Amid rising concerns, White House officials are intent on easing the rules of the Home Affordable Refinance Program, which allows mortgages backed by financing giants Fannie Mae and Freddie Mac to be refinanced at lower rates.
HARP, begun in 2009, was supposed to help millions of homeowners, but instead just 865,000 loans have been refinanced through July.
Economists and housing industry executives said the program's stringent requirements made many homeowners ineligible. For example, borrowers can't qualify if their mortgages exceed 125% of their homes' value. Those who do qualify might face stiff fees.
Banks, meanwhile, have been reluctant to participate, partly because they feared they might be required to buy back mortgages if even small violations of government underwriting guidelines occurred.
Obama can't make changes in HARP. That's the realm of the Federal Housing Finance Agency, an independent agency that took control of Fannie and Freddie in 2008.