It's Now Obama's Housing Market: Street Whispers
Under the proposed plan, borrowers with standard non-GSE mortgages (not jumbo loans) who have been current on their payments for at least the last 6 months -- and not skipped more than one payment in the 6 months prior -- and who have a minimum credit score of 580 will be eligible to get their loans refinanced through the FHA into a 4.25% 30-year loan.
The plan, which requires Congressional approval, could save borrowers upto $3,000 a year in mortgage payments. Republicans have balked at the plan, especially because the White House proposed it be funded by a "tax" on the largest banks.
With Republicans still in control of the House, Obama has a fight on his hands.
But he sounded hopeful in a recent address in October. " Let's be honest - Republicans in Congress won't act on this plan before the election. But maybe they'll come to their senses afterward if you give them a push. So contact your Representative, especially if this plan will help you or someone you know. Tell him or her that American homeowners have waited long enough. Tell them that it's time for Congress to stop standing in the way of our recovery and to start standing up for you."
Another controversial issue would be a proposal to eliminate the mortgage interest deduction as the U.S. works to reduce its deficit. In tackling deductions, President Obama would try to ensure that middle-class borrowers are not unduly affected.
Then there is the tried-and-failed attempt to get the Federal Housing Finance Agency- the regulator of Fannie Mae and Freddie Mac- to reduce principal on mortgages backed by the GSEs.
Acting FHFA director Edward DeMarco has remained steadfastly opposed to principal reductions because it will increase losses to the taxpayer, encourage strategic defaults and offer a backdoor bailout to banks who own second liens on the mortgages.
Proponents have argued that principal reductions in the long run will reduce loan defaults and thereby save the taxpayer from future losses.
There has been plenty of speculation that the President will replace DeMarco when Congress is in recess, in much the way he appointed Richard Cordray to the Consumer Financial Protection Bureau. So that is something to watch out for.
Of course, there is the $180-bilion question of what to do with bailed out mortgage giants Fannie and Freddie. Both Republicans and Democrats agree that the role of the GSEs needs to reduce, but neither parties have offered a concrete solution.
But perhaps Obama could focus on that in the second term. Some analysts contend that Obama will have more freedom to dive into the politically charged issue of mortgage finance and role of government in housing, when he does not face the pressure of being re-elected.