US: Obama Proposing Home Loan Relief

Posted February 1st, 2012 at 12:15 pm (UTC-5)
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U.S. President Barack Obama is offering beleaguered American homeowners a chance to refinance their housing loans to take advantage of near-record-low borrowing costs.

Mr. Obama said Wednesday the value of millions of homes have sharply fallen during the country's economic downturn, leaving many homeowners with loans that are bigger than the value of their houses and unable to rework the terms of their mortgages.

He said the crisis has “struck right at the heart of what it means to be middle class in America,” owning a home, and was the “single biggest drag” on the country's economic recovery.

The president said his plan would give “responsible homeowners” — perhaps 3.5 million by White House estimates — a chance to revise their loans and possibly save about $3,000 annually.

The home loan plan could cost between $5 billion and $10 billion, financed by a tax on large banks, and would have to be approved by Congress. But Congress has already twice rejected similar proposals at a time when the country faces significant concerns about increased deficit spending.

The average interest rate on 30-year home loans in the U.S. has for months been below 4 percent. But millions of homeowners have loans with higher rates and have not refinanced, in some cases because lenders have classified them as risky bets to repay the revised loans. Under the president's plan, some of those homeowners would be able to secure lower-cost loans.

Housing is the weakest sector of the American economy, the world's largest, and has been very slow to recover in the aftermath of the country's recession from 2007 to 2009. Millions of homeowners, many of whom had lost their jobs in the country's worst economic downturn in seven decades, have then had their houses repossessed by their lenders when they could no longer make their monthly loan payments.

Mr. Obama's plan will not help those who have already lost their homes, but could ease the financial burden for cash-short homeowners looking to cut their monthly bills.

Mr. Obama, a Democrat, is running for a second four-year term, with his handling of the country's economy a major concern for many voters. As the country's presidential election campaign has intensified, opposition Republican lawmakers and the party's presidential contenders have sharply criticized his economic leadership and have shown little interest in adopting his proposals.

Several states that are likely to be key battlegrounds in the national election in November have some of the biggest number of home loan foreclosures and the largest drops in home values.