President's plan could help underwater homeowners

Mortgage rates plummeted this week, reaching record lows, as the Obama administration made another attempt to help underwater homeowners refinance their mortgages to take advantage of the super low rates.

The benchmark 30-year fixed-rate mortgage fell 13 basis points this week to 4.12 percent, according to the national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.29 discount and origination points. One year ago, the mortgage index was 5.02 percent. Four weeks ago, it was 4.18 percent.

The benchmark 15-year fixed-rate mortgage fell 11 basis points to 3.34 percent. The benchmark 5/1 adjustable-rate mortgage fell 7 basis points to 3.02 percent, and the benchmark 30-year, fixed-rate jumbo fell 7 basis points to 4.55 percent.

This is the lowest the rate on 30-year-fixed mortgages has reached since Bankrate started its weekly survey in 1985. The 15-year, 5/1 adjustable-rate mortgages and 30-year jumbo rates are record lows, too.

While rates have been incredibly attractive for several months, "too many families haven't been able to take advantage of the low rates," President Barack Obama said Wednesday during a speech in Falls Church, Va.

"There are more than 10 million homeowners across the country right now who, because of an unprecedented decline in home prices that is no fault of their own, owe more on their mortgages than their homes are worth," he said.

To give those families an opportunity to refinance at lower rates, Obama is sending a proposal to Congress that would allow underwater borrowers to refinance through Federal Housing Administration-insured loans. The program would work similar to the Home Affordable Refinance Program. But the proposed plan would be aimed at borrowers who have mortgages that aren't backed by Fannie Mae or Freddie Mac. HARP helps only those whose loans are owned by Fannie and Freddie.

Shaun Donovan, secretary of the Department of Housing and Urban Development, said that a broad-scale refinancing plan is needed to boost the housing market and prevent additional foreclosures.

"There is increasing evidence that it makes economic sense" to help these borrowers refinance their mortgages, he said.

There is no question that borrowers and the economy would benefit from the refinance program. But is it realistic to expect Congress to approve the plan and for lenders to embrace it?

"I don't have much hope for the new refi plan being approved if it requires action from Congress," said Michael Becker, a mortgage banker at WCS Funding in Baltimore.

Under the proposed plan, lenders would be charged a fee to fund the program.

The Obama administration has unsuccessfully tried to push Congress to approve a fee on lenders since 2010.

"There should be a contribution from those who have contributed to this crisis," Donovan said during a press briefing Wednesday.

Barry Zigas, director of housing policy for the Consumer Federation of America, said it is not unreasonable to ask lenders to help contribute to the refinance plan.

But Congress also would have to take action to allow the FHA to guarantee underwater loans, as the current rule allows the FHA to guarantee loans that are up to 97.5 percent of the home's value.

The legislation will have an uphill battle, said David Stevens, president and CEO of the Mortgage Bankers Association.

"Conceptually, if this can be done safely and soundly, it would certainly help a lot of Americans," he said during a press briefing.

As Congress reviews the proposed plan, underwater borrowers can only hope that rates remain low while they wait.

The Fed has done more than its share to ensure that rates remain low. Part of the reason rates tumbled this week is because the Fed announced last week that it will keep the key federal funds rate near zero percent until late 2014.

The slow economy contributes to favorable rates, Becker said.

"I see the economy weakening in the first half of this year, and with the euro debt crisis not being solved anytime soon, I expect low rates to be with us for the next six months or longer," he said.

Jay Brinkmann, senior vice president and chief economist for the MBA, said unemployment will remain an issue through the year.

The MBA expects an average of about 150,000 new jobs per month in payroll growth this year.

"That's not enough of a pace to drive a decrease in the rate of unemployment," he said.