Susan Walsh, Associated Press
President Barack Obama, sitting next to Defense Secretary Leon Panetta, right, speaks during a cabinet meeting in the Cabinet Room of the White House in Washington, Tuesday, Jan. 31, 2012.
WASHINGTON — The Obama administration is trying to fix a stubborn drag on the economy by allowing all homeowners to refinance their mortgages at lower interest rates even if they owe more than their homes are worth, tackling a difficult issue of vital concern in states key to President Barack Obama's re-election.
Obama on Wednesday was to draw attention to a proposal he outlined in his State of the Union address to allow homeowners with privately held mortgages to take advantage of record low rates, for an annual savings of about $3,000 for the average borrower. Obama was detailing his plan during a visit to a northern Virginia community center.
The administration proposal faces a major hurdle in Congress. The program would be paid for by a fee on large banks. The administration has tried unsuccessfully before to win support for assessments on large banks.
The plan would expand the administration's Home Affordable Refinance Program, which allows borrowers with loans backed by government-affiliated mortgage giants Fannie Mae and Freddie Mac to refinance at lower rates. About 1 million homeowners have used it, well short of the 4 million to 5 million the Obama administration had expected. Moreover, many "underwater" borrowers — those who owe more than their homes are worth — couldn't qualify.
Private economists have estimated that expanding the plan to all borrowers could allow up to 10 million homeowners to refinance, giving the economy a significant jolt. The Federal Reserve has been less sanguine, estimating that 2.5 million more Americans might be eligible to refinance through the expanded program.
A punctured housing bubble was at the center of the recession, prompting widespread foreclosures and leaving millions of homeowners with houses valued at less than their mortgages. Hit hardest were Nevada and Florida, two states that figure prominently in the presidential campaign and that Obama is counting on winning to secure re-election.
Under the refinancing plan, any homeowner current on his or her mortgage could take advantage of historically low lending rates. The average rate for a 30-year mortgage is 3.88 percent.
About 11 million Americans — roughly 1 in 4 with a mortgage — are underwater, according to CoreLogic, a real estate data firm.
Half of all U.S. mortgages — about 30 million home loans — are owned by nongovernment lenders.