Jobs & The Economy: Putting America Back to Work
“It is our generation’s task, to reignite the true engine of America’s economic growth —
a rising, thriving middle class,”
Helping Responsible Homeowners
The housing market suffered a dramatic collapse caused by irresponsible lenders who tricked buyers into signing subprime loans and in some cases irresponsible homeowners who took out loans they knew they could not afford. To address this crisis, President Obama and his Administration have taken a broad set of actions to stabilize the housing market and help responsible American homeowners. And to protect consumers from unfair practices and prevent lenders from taking excessive risks, President Obama overcame a furious lobbying game from the big banks and intransigence from Congressional Republicans to pass and sign into law the most sweeping financial reforms since the Great Depression and established a new watchdog to enforce the strongest consumer protections in history. These reforms hold Wall Street accountable and ensure that responsibility is rewarded and everyone, from Wall Street to main street, plays by the same rules.
Help for homeowners
Four years ago, stress in the financial system had severely reduced the supply of mortgage credit, limiting the ability of Americans to buy homes or refinance mortgages. Millions of responsible families who had made their monthly payments and had fulfilled their obligations saw their property values fall. They also found themselves unable to refinance at lower mortgage rates. That’s why, since President Obama’s first days in office, his Administration has taken the following actions to strengthen the housing market and help responsible homeowners affected by the recession regain the stability and security they had in their homes:
- Helping families refinance their mortgage to save thousands of dollars each year: The Obama administration has made it easier for borrowers who are current on their federally backed mortgages—including those who owe more than their homes are worth—to take advantage of refinancing at today’s historically low interest rates. More than 2 million families have refinanced through the Home Affordable Refinance Program (HARP) and more than 1.1 million families have refinanced through FHA's streamlined refinancing program. In addition, the President asked Congress to pass universal refinancing legislation so that any homeowner who is current on their payments can refinance at today’s low rates and save about $3,000 a year.
- Helping more than 6 million families stay in their homes through modified mortgages: The Making Home Affordable Program is a critical part of the Obama Administration's broad strategy to help homeowners avoid foreclosure, stabilize the country's housing market, and improve the nation's economy. Homeowners can lower their monthly mortgage payments and get into more stable loans at today's low rates. And for those homeowners for whom homeownership is no longer affordable or desirable, the program can provide a way out that avoids foreclosure.
- Expanding use of principal reduction for eligible borrowers: The Administration expanded principal reduction through the national mortgage settlement and tripled incentives for lenders to reduce principal balances for mortgage loans..This has collectively helped approximately 350,000 families and contributed to 1.7 million coming above water on their mortgages in 2012..
- Providing out-of-work Americans the opportunity of delaying mortgage payments for a year while they get back on their feet: Lenders must extend the forbearance period for unemployed homeowners with FHA loans from four to twelve months. Previous mandatory periods were inadequate for the majority of unemployed borrowers, and providing the option for a year of forbearance gives struggling homeowners a substantially greater chance of finding employment before they lose their home. Many private market lenders have since followed the Administration’s lead by extending their unemployment forbearance period to twelve months as well.
- Supporting state and local housing finance agencies: The Obama Administration launched a $23.5 billion Housing Finance Agencies Initiative that is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families.
- Supporting the First Time Homebuyer Tax Credit: The First Time Homebuyer Tax Credit helped more than 2.5 million American families purchase their first homes.
- Expanding the Neighborhood Stabilization Program: These funds help communities buy and redevelop foreclosed and abandoned homes and residential properties – putting Americans back to work, creating more affordable rental housing, and helping the neighborhoods that need it most. Additionally, the President introduced Project Rebuild, which will help the private sector to put construction workers back on the job revitalizing vacant homes and businesses.
- Creating the $7.6 billion HFA Hardest Hit Fund: This fund is supporting innovative foreclosure prevention programs in the nation’s hardest hit housing markets.
Preventing another crisis
Equally as important as helping responsible homeowners was making sure this kind of crash does not happen again. The Administration overcame opposition from Congressional Republicans and put an end to the unfair lending practices that caused this crisis by:
- Passing Wall Street reform and establishing the Consumer Financial Protection Bureau: President Obama signed into law Wall Street Reform that reins in big banks and mortgage lenders by preventing the excessive risk-taking that lead to the housing crisis, requiring lenders to verify that borrowers have the ability to pay, and creating the first ever consumer watchdog to prevent mortgage companies from exploiting consumers with unfair and deceptive practices.
- Requiring increased disclosure and transparency in the lending process: The piles of forms needed for a regular mortgage can be overwhelming, and many brokers have taken advantage of that confusion to give borrowers loans they didn’t need or couldn’t afford. The CFPB has launched a program called Know Before You Owe, an effort to combine two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop for the best mortgage offer.
- Creating a Homeowner Bill of Rights: In addition to simplifying required mortgage forms, President Obama has proposed developing a comprehensive set of of rules that protect borrowers and investors alike, while strengthening the overall housing market. These rules include eliminating conflicts of interest wtihin the market, as well as hidden fees and penalties, establishing safegaurds against inappropriate foreclosures, and requiring assistance for at-risk borrowers.
Investigating mortgage misconduct: Earlier this year, the Federal Government and 49 state attorneys general announced a landmark settlement to address mortgage loan servicing and foreclosure abuses that will require five major servicers to provide over $25 billion in relief to homeowners. In addition, the agreement will require the mortgage servicers to implement unprecedented changes in how they service mortgage loans and handle foreclosures – helping to prevent some of the abuses that led to the crisis. In doing so, it takes a major step towards implementing some of the principles put forward in the Homeowner Bill of Rights.
To continue investigating the misconduct involved in predatory mortgage lending as well as the selling and packaging of mortgage-backed securities and the role those practices played in the financial crisis, the Department of Justice, the Department of Housing and Urban Development, the Securities and Exchange Commission and state Attorneys General have formed a Residential Mortgage-Backed Securities Working Group under President Obama’s Financial Fraud Enforcement Task Force.
- Helping to keep interest rates at historic lows: The Federal Reserve and the U.S. Treasury purchased more than $1.4 trillion in agency mortgage backed securities through independent Mortgage-Backed Securities (MBS) purchase programs, helping to keep mortgage rates at historic lows. Treasury’s actions helped stabilize the mortgage market at a time of unprecedented market volatility and illiquidity and helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments.
- Supporting Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit: The losses that the federal government had to backstop are virtually all attributable to bad loans that Fannie and Freddie took on between 2005 and 2007 – during the height of the housing bubble. Unfortunately, we still need to manage the continuing consequences of those poor credit choices. Fannie and Freddie have made significant progress in improving the credit quality of their new obligations. Since 2008, FICO scores and loan-to-value ratios – both of which are key measures of how likely a borrower is to default – are meaningfully better on new mortgages. Fannie and Freddie have also increased their guarantee fees and risk-adjusted their pricing.