President Barack Obama unveiled an ambitious mortgage refinancing program during his Tuesday night State of the Union speech, but some experts say the new plan is a whole lot of politics without much policy to back it up.
Though details remain murky, the plan would likely build off of the existing government-sponsored refinancing program, HARP, making it easier for underwater homeowners with privately-held mortgages to refinance at today's historically low rates. The legislation would be paid for by a "small fee" on the nation's largest financial institutions, the details of which have not been released, giving banks bailed out by taxpayers "the chance to repay a deficit of trust," Obama said.
Some experts estimate as many as 12 million Americans could benefit from the president's plan if it can make it through Congress.
But that's where the trouble is. That "small fee," plus the fact the proposal will almost certainly need congressional approval are huge hurdles, ones experts say the White House will not likely be able to surmount this year.
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"The president pretty clearly signaled that [the program] would need some kind of congressional action," says Brian Gardner, senior vice president of Washington research at Keefe, Bruyette & Woods. "To the extent that it does, I think it's D.O.A."
The president called on members of Congress to look beyond the party divide in his address, but most observers are skeptical that 2012 will be the year politicians will hold hands and sing Kumbaya for the greater good of the country.
"He can't get to the other side of the market without congressional approval," says Stan Humphries, chief economist at real estate website Zillow. "He's probably not going to get that this year."
Humphries also brings up that an expanded government refinancing program would also expand the government's role in the housing market, a bit of a reversal from earlier statements made by the Obama administration pledging to peel back the presence of the government in the housing market. That could ultimately put taxpayers on the hook for more mortgage losses, because mortgages refinanced under the government's new program would likely be backed by Fannie Mae, Freddie Mac, or the Federal Housing Authority.
"It does represent additional risk for the federal government," Humphries says. "It puts the government in a more dominant position in terms of the mortgage finance sector."
But with so many Americans struggling with underwater mortgages, it's hard to look past the benefits such a program could have on homeowners and the broader economy. Refinancing has long been championed as a way to reduce homeowners' monthly payments, which not only pushes them back from the brink of delinquency and possible foreclosure, but takes a little pressure off their monthly budgets.
"[Refinancing] generates monthly savings, which is money that could be pumped back into the economy and it accelerates homeowners' accumulation of home equity because less of each payment is going toward the interest," says Greg McBride, senior financial analyst for Bankrate.com.
Experts estimate a refinancing break could put an extra $40 to $70 billion back into homeowner's pockets.
"It does represent a significant amount of economic stimulus," Humphries says.
Still, with few details from the White House on how exactly the president's latest refi proposal would play out, some are writing off the president's announcement as nothing more than political posturing in the run up to an election year that promises to be polarized.
"I think if the administration was serious about it, it would have had details," Gardner says. "There are no details, and the plan is not finished. The administration wanted a talking point for the speech, less so than something they could really implement."