President Barrack Obama is set to announce a new package of regulations and draft bills intended to provide cheap or free mortgage refinances to middle-class homeowners across the country.
If implemented, the election-year gambit would reduce mortgage holders’ payments’ by a few hundred dollars per month, according to an administration statement.
The prospect of monthly savings may translate into additional votes for Obama’s 2012 campaign. Approximately 10 million people owe more on their mortgages than their houses are worth.
However, those savings would be deducted from banks’ revenues, reducing their funds available for commercial investment needed to spur the economy. Banks’ executives are being pressured to cooperate with the new push, partly because Obama has stepped up federal investigations of banks’ mortgage-selling divisions prior to the crash.
The offer of cheap mortgage refinances is possible because interest rates are already at historic lows, despite huge government borrowing.
Obama’s proposal comes after several years of falling house prices, which have slid lower since the summer of 2010, despite several White House efforts to deal with the problem.
Housing prices plunged from a market high in 2006, following two decades of government mortgage-lending regulations that inflated the housing bubble. Prices stabilized in 2009, rose slightly in early 2010, and fell throughout 2011, amid a stalled economy.
The new proposal would levy a tax of $5 billion to $10 billion on banks to offset mortgage refinancing costs, which would also be roughly $3,000 for each homeowner.
The $3,000 cost would be waived for homeowners who spend their interest-rate savings on increasing their equity in underwater mortgages.
Obama is also pushing the financial sector to accept a new “Homeowner Bill of Rights” that would slow or curb foreclosures when mortgage holders fall behind in their payments.
In a speech, planned for 11:00 a.m., Wednesday morning, Obama will also announce that major banks, including Wells Fargo and the Bank of America, have agreed to allow unemployed people to stop paying mortgages for 12 months.