WASHINGTON — A plan by the Obama administration to help millions of middle class families refinance their homes is coming with a big bill for the largest U.S. banks.
For the first time since President Obama announced the plan during his third State of the Union last week, he offered new details on which homeowners would be eligible to participate and what the program would ultimately cost the largest banks, which will be asked to pay a fee to offset the cost.
The administration estimates the expense of the program to be anywhere between $5 billion to $10 billion. It's still unclear how fees would be assessed to the banks or when they would begin having to pay, but the administration has stressed the program must not impact the deficit.
Further details will be included when the White House releases its upcoming fiscal 2013 budget in two weeks.
"As you will see in the budget, it continues to be a proposal that the president believes is the right thing to do," Secretary Shaun Donovan of the Housing and Urban Development told reporters at a press briefing at the White House. "I think, broadly speaking, we believe this is the right housing policy. If Congress believes that there are other ways we should look at paying for this we would be open to having discussions as the president has done in other situations."
Still, Donovan warned those who were responsible for this crisis should still have to pay.
"We will ensure, though, and that's the principle of the bank fee, there should be a contribution from those that contributed to the crisis," Donovan said. "The very institutions that made many of these mortgages, that caused much of the damage that we are trying to repair, ought to participate in helping us solve it."
That sentiment was echoed earlier in the day by President Obama.
"Banks and lenders must be held accountable for ending the practices that helped cause this crisis in the first place. And all of us must take responsibility for our own actions - or lack of action," Obama said in a speech in Falls Church, Va. "So I urge Congress to act. Pass this plan. Help more families keep their homes. Help more neighborhoods remain vibrant and whole. Help more keep more dreams defended and alive."
Republicans have already criticized the proposal, saying any massive refinancing plan that would put a tax on the biggest banks would be a nonstarter.
"Anything about raising taxes, I think, is pretty well dead on arrival in the House by Republicans," Rep. Scott Garrett, R-N.J., who chairs the House Financial Services subcommittee on capital markets and government-sponsored enterprises said last week in an interview. "We know at the end of the day any tax is ultimately paid by the consumer, and so they may see a short-term windfall, but at the end of the day they'll be paying more."
This is the not the first attempt by the White House to place a tax on the largest banks, but it has failed to gain broad support in the past. Even so, the administration believes this time around it will prove far more successful.
"When the president last fall said there were steps that we needed to take to help Fannie Mae and Freddie Mac borrowers to refinance there was bipartisan support in Congress to do that," said Donovan, referring to Sen. Barbara Boxer, D-Calif. and Sen. John Isakson, R-Ga., who introduced a bill. "I think you will see broad support across the political spectrum to do this."
The president's proposal is aimed at helping millions of responsible homeowners who have paid on time and meet other criteria, but have been unable until now to refinance their homes.
The White House says that under its plan it could help homeowners save an average of $3,000 a year.
"We cannot sit on our hands when we know we can help those families to be able to refinance," said Donovan.
Borrowers with good credit and clean payment histories are often rejected from refinancing applications because their mortgages are underwater. Other times, banks worry they will be left taking losses, even when Fannie Mae and Freddie Mac are insuring these new mortgages.
Those who are eligible must be current on their mortgages for the past six months without missing any more than one payment in the prior six-month period. They should also have a current credit score of 580 at a minimum and their loan can not be larger than the current limits established by the Federal Housing Administration.
In his speech, Obama said the results of the plan would have a significant impact.
"It will take more time than any of us would like for the housing market to recover from this crisis," said Obama. "It will take a while for those prices to rise again. But there are actions we can take, right now, to provide some relief to folks who've been making their payments on time."
However, Obama warned this would not be a bail out for those homeowners who abandoned their homes, or for those who hoped to turn a quick profit.
"I want to be clear: this plan, like the other actions we've taken, will not help the neighbors down the street who bought a house they couldn't afford, then walked away and left a foreclosed home behind. It will not help those who bought multiple homes just to speculate and make a quick buck," said Obama.
Rather, the president's plan is intended to help streamline the process to facilitate more homeowners to refinance their homes in a much more cost effective way helping to put more money in the pockets of families.
As a result, the president is asking Congress to go even further by eliminating appraisal costs for all borrowers, increase competition so borrowers can get the best deal, extend streamlined refinancing for all GSE borrowers, and give borrowers the chance to rebuild equity in their homes.
The plan also proposes a bill of rights for homeowners that will take steps to further simplify the process and ensure that borrowers and lenders play by the same rules, including access to a simple disclosure form, full disclosure of fees and penalties, and guidelines to keep responsible families in their homes and out of foreclosure.
To offer relief to out of work borrowers, the administration is also encouraging major servicers to provide a year-long forbearance for those that are unemployed. Already, Wells Fargo and Bank of America have begun to offer a longer foreclosure period to struggling families.
Additionally, the administration announced that the Federal Housing Finance Agency, along with Treasury and HUD, would begin the first pilot program to turn foreclosed properties into rentals to help rid the shadow inventory from the housing market.
