Saying that the housing crisis struck right at the heart of what it means to be middle class, President Barack Obama has begun to flesh out the housing-related proposals he made in his State of the Union speech last Tuesday.  He spoke this morning at Falls Church, Virginia about his housing plans, some pieces of which have already been put into effect by the Departments of Justice (DOJ), Treasury, and Housing and Urban Development (HUD) in the eight days since they were first announced. The President spoke only briefly and most of the information about his proposals comes from a Fact Sheet released by the White House just before his speech.

The most ambitious part of the Administration's housing plan is the expansion of several existing programs to streamline refinancing for homeowners with existing high interest rate government or Fannie Mae/Freddie Mac mortgages. The President wants to extend these opportunities to homeowners with standard conforming non-FHA, VA, or GSE mortgages through a new program run through FHA.  To be eligible the homeowner would have meet a few simple criteria:

• Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• Borrowers must have a current FICO score of 580 to be eligible, a requirement met by approximately 9 in 10 borrowers.
• The loan they are refinancing is for a single family, owner-occupied principal residence.

A streamlined application process will make it simpler and less expensive for both borrowers and lenders.  Borrowers will not be required to submit a new appraisal or tax return, merely verify current employment.  Those who are not employed may still be eligible if they meet the other requirements and present limited credit risk, however, a lender will need to perform a full underwriting of those borrowers.

The President's plan includes additional steps to reduce program costs, including working with Congress to establish risk-mitigation measures including requiring lenders interested in refinancing deeply underwater loans to write down the balance of these loans before they qualify.   There would be a separate fund created for the program to help the FHA track and manage the risk involved and ensure that it has no effect on the operation of the existing Mutual Mortgage Insurance (MMI) fund.  The estimated $5 to $10 billion cost of the program would be paid by a fee on the largest financial institutions based on their size and the riskiness of their activities

There were also some changes suggested for GSE refinancing programs.  President Obama said he believed the steps he proposes are within the existing authority of the FHFA but the GSEs have not acted so he is calling on Congress to:

• Eliminate appraisal costs for all borrowers by using mark-to-market accounting or other alternatives to manual appraisals where Automated Valuation Models cannot be used to determine loan-to-value ratios.
• Direct the GSEs to require the same streamlined underwriting for new servicers as they do for current servicers to unlock competition and lower borrowing costs.
• Extend streamlined refinancing to all GSE borrowers including those with significant equity in their home.

There are also proposals to streamline refinancing for borrowers in the USDA and FHA housing programs but the White House noted that the current FHA-to-FHA streamlined refinancing program has met with some resistance from lenders who are afraid to make loans that might compromise their FHA approved lender status.  FHA is removing these loans from their "Compare Ratio" process which should open the program up to more borrowers.

Borrowers utilizing either the Home Affordable Refinancing Program (HARP) or the new FHA-based program would be given an alternative to allow them to rebuild the equity in their home.  This option would require refinancing into a 20 year mortgage and the homeowner would continue to make the old mortgage payment.  The excess money would be applied directly to principal that, along with the shorter term would allow the homeowner to quickly rebuild equity.  To encourage borrowers to make this choice (which also reduces lender risk) the administration is proposing legislation to provide for the GSEs and FHA to cover the loans' closing costs.

A Homeowner Bill of Rights proposed by the Administration would apply to the mortgage servicing system which the White House said "is badly broken and would benefit from a single set of strong federal standards."  Among the items proposed for this Bill of Rights are:

• Simple, Easy to Understand Mortgage Forms
• Disclosure of all known fees and penalties
• No conflicts of interest between servicers and investors or servicers and junior lien holders.
• Assistance for at-risk homeowners to include early intervention, continuity of contact, and time and options to avoid foreclosure.
• Safeguards against inappropriate foreclosure including the right of appeal, certification of proper process.

The President plans to include $15 billion in his Budget for a national effort to hire construction workers to rehabilitate hundreds of thousands of vacant and foreclosed homes and businesses.  Similar to the Neighborhood Stabilization Program, Project Rebuild will enlist expertise and capital from the private sector, focus on property improvements, and expand property solutions like land banks.  The Budget will also provide $1 billion in funding for the Housing Trust Fund to finance the development of affordable housing for extremely low income families while providing jobs in the construction industry.  

Other initiatives which the President talked about this morning or which were covered in the White House Fact Sheet have already been launched in the last few days including a joint investigation with the states into mortgage origination and servicing abuses, expansion of eligibility criteria for HAMP and increased incentives for lenders in the program to reduce principal balances, and a pilot sale announced to transition foreclosed properties into rental housing in certain highly distressed communities which was announced by HUD this morning

The White House said that, while the government cannot fix the housing market on its own, the President believes that responsible homeowners should not have to sit and wait for the market to hit bottom to get relief when there are measures at hand that can make a meaningful difference, including allowing these homeowners to save thousands of dollars by refinancing at today's low interest rates.

Conventional wisdom holds that the President's proposals will be "dead on arrival" when they reach Congress and, in fact the reaction of Speaker of the House John Boehner to the speech was, "How many times are we going to do this?  How many times are we going to suggest programs to help people who can't make payments on their mortgages?  The programs don't work."

A kinder assessment was released in a statement from David H. Stevens, President and CEO of the Mortgage Bankers Association.  Stevens commented specifically on the Homeowner Bill of Rights saying the Association agrees that a single national set of standards "can help provide confidence and certainty in the real estate market for borrowers, lenders, and servicers alike."

He also commended the administration for "recognizing that more can be done to get our housing market on track.  The programs announced today will give lenders and other stakeholders additional tools to help borrowers and foster a renewed confidence in our real estate finance system."