Obama Refinance Plan

Obama Refinance Plan Proposes Mortgage Help to Millions of Borrowers

Editor’s Note: As of late 2012, the Obama Refinance Plan has not been passed into law. Various proposals have been made, in Congress and by the President to expand the refinance opportunities for borrowers who’ve been shut out of the market so far. Read the Bills.com resources HARP 3 and #myrefi, to learn more.

The new Obama refinance plan is designed to assist responsible homeowners who have been unable to refinance at today’s historically low interest rates. This mass refinance plan is intended to help millions of Americans benefit from low interest rates and consequently get lower monthly payments.

The Obama refinance plan will help qualifying borrowers save hundreds of dollars a month and stimulate the struggling housing market and the economy in general.

Following up on plans the President hinted at in his State of the Union address, as well as the HARP 2.0 mortgage program announced late in 2011 and the expansion of the HAMP program announced in January 2012, the new Obama refinance plan is a "broad based refinancing to help responsible borrowers save an average of $3,000 per year." You meet Obama’s definition of a "responsible borrower" if you are:

• Current on your mortgage payments for the past six months, with only one mortgage late in the past 12 months
• Have a minimum credit score of 580, which is far lower than required for a conventional loan

Other requirements include:

• Restricting loans to borrowers refinancing their primary residence
• Having a loan that fits with FHA loan limits for the county. FHA maximum loan limits range from $271,050 to $729,750, depending on where your home is located.

Not Just Fannie or Freddie

The new Obama Refinance Federal plan expands the pool of eligible borrowers to loans that are not currently backed by the government or by either Fannie Mae or Freddie Mac. The HARP mortgage program is restricted to loans backed by Fannie or Freddie, so the new Obama refinance program will reach millions of borrowers who have been shut out of the market.

Streamlined Process

In addition to offering the chance to refinance at low rates, the new Obama refinance program aims to streamline the mortgage process for qualifying borrowers. The goal is to make it easier and cheaper for borrowers and lenders to refinance. Key provisions include:

• No appraisal required
• No tax returns required
• Only verification of employment for employed borrowers

Build Equity and Have Your Closing Costs Paid For

To encourage borrowers to use the savings that refinancing will bring to build equity, the new Obama refinance plan will pay your closing costs on the loan, resulting in zero closing costs, if you refinance into a loan with a term no longer than 20 years and "with monthly payments roughly equal to those" on your current loan. President Obama estimates that this provision will save an average of "about $3,000 per homeowner."

Financial Institutions Pay the Costs

President Obama estimates that the costs of the Obama refinancing plan will range between $5 billion and $10 billion. The costs will be covered from the newly proposed Financial Crisis Responsibility Fee that is charged to the largest financial institutions in the country, without increasing the Federal deficit by even "a dime."

Sticking Points

The Obama refinance plan can’t be imposed by presidential order. To become law, Congress must pass the President’s proposals. President Obama aims to build grass-roots support for his proposals and put pressure on Congress to offer relief to homeowners. Given the divisions that exist in Washington, the Obama refinance plan faces plenty of opposition from Congress. The plan will also likely face opposition from lenders and the financial institutions being asked to pay for it.

Bills.com will continue to report this story as more facts emerge, so return here for updates.