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Administration Announces Not-New New Housing Relief Programs

I’ll get to the President’s press conference (still ongoing) in a moment, but at the top of it, he announced a series of “new” measures on housing. I put “new” in quotes because I don’t see how these are particularly new measures.

Today, the President is announcing two steps the Administration is taking to support homeowners and their families – providing relief for servicemembers and veterans, including those wrongfully foreclosed upon or denied a lower interest rate on their mortgages, and reducing fees for FHA borrowers looking to refinance. Along with the President’s broader plan to help millions of Americans refinance and save thousands of dollars a year, support the communities hardest-hit by the housing crisis, and help families avoid foreclosure and stay in their homes, this is part of the President’s overall strategy to support responsible homeowners and the housing recovery.

Let’s take these one at a time. The relief for servicemembers and veterans came out of a Justice Department settlement with leading mortgage servicers. It was announced as part of the mortgage settlement. To consider this new is to believe that no settlement exists. And considering that it was announced on February 9 and it’s March 6 and we have no settlement terms, maybe that’s the case. Can we infer that the settlement has completely broken down, then, if this announcement is being made outside the framework of the settlement?

I’ve gone through this before, but it’s remarkable to see the camo-washing at work here. The servicers are so spooked by the clear facts that they wronged servicemembers by foreclosing on them while they served overseas that they’ve gone well above and beyond anything they’ve done for other homeowners. As stated previously, every wrongfully foreclosed servicemember will get at least $116,785 in compensation, as well as lowered interest rates if the ones given violated the Servicemembers Civil Relief Act. There are also promises of $10 million in fines into the Veterans Affairs loan fund. Of course, SCRA violations carry jail terms, but that has been nicely avoided. The point being, we don’t see these kinds of terms for any other borrower subject to a wrongful foreclosure.

As for the reduction in FHA fees (which are substantial – more than half, which the White House claims will save a borrower over $1,000 a year), I thought this was part of the Administration’s broader refinancing strategy. This concerns FHA-insured loans specifically, so it’s a smaller universe of homeowners (the White House says 2-3 million), but it’s along the exact same lines as the previous announcement. So you’re getting double the bang for the buck in announcing the same policy on more than one occasion.

Here are the very sad facts about the Administration’s housing plans, and I take no pleasure in their accuracy. Pro Publica is slightly wrong about the FHA deal – this is an announcement, not a proposal, and the changes to fees will go into effect – but the broader point is true.

Déjà vu: This is only the latest in a long series of attempts by Obama to help homeowners refinance. There have been a few, minor attempts to push refinancing through the FHA. Via a separate program launched in 2009 that used Freddie and Fannie, more than 900,000 homeowners have refinanced, substantially fewer than the goal of 4 million homeowners.

Will it happen? Unlikely. This plan needs to get through a Congress that is staunchly opposed. “How many times have we done this?” said House Speaker John Boehner, R-Ohio.

Republicans have a number of objections. First, Obama wants the plan to be paid for with a fee on the banks in repayment for the bailout, a tactic that’s raised Wall Street hackles in previous budgets. Secondly, some Republicans balk at passing more risk on to the FHA, which is in danger of having to ask the Treasury for a subsidy for the first time in its nearly 70-year history. Even if the plan passes, its impact would likely be limited. For the Obama administration to instigate mass refinancing without Congress’ help, many say it would need to get Fannie and Freddie on board, a move the companies’ regulator has so far been reluctant to endorse.

FHA refinancing is only a smaller version of what the Administration wants to do for Fannie and Freddie, and Ed DeMarco has stonewalled that. As Neil Barofsky said on Twitter, today’s FHA plan is very similar to the FHA short-refi program that has helped far less borrowers than estimated.

To be clear, I hope homeowners, particularly servicemembers, take advantage of these programs and assert their rights (servicemembers who think they were wronged can contact the Justice Department at 1-800-896-7743). But let’s not pretend these are massive new initiatives that will bring the foreclosure crisis to a close.

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David Dayen

David Dayen