FALLS CHURCH, Va. — Conceding his earlier housing programs have fallen short, President Barack Obama on Wednesday proposed a vast expansion of government assistance to homeowners, aiming to make lower lending rates a possibility for millions of borrowers who have not been able to get out from under burdensome mortgages.
The president's proposal is laden with election-year politics and faces a difficult path in Congress. Obama wants to pay for the estimated $5 billion to $10 billion cost with a fee on the nation's largest banks, a proposal that has failed to win support even when Democrats controlled both the House and Senate.
In addition, its potential impact could be limited by the fact that it would not apply to borrowers who are behind on their home loan payments, those most threatened by foreclosure.
The housing issue, while national in scope, particularly resonates in election battlegrounds such as Nevada and Florida that have faced record foreclosures. Obama himself drew attention to the politics surrounding the issue with a jab at former Massachusetts Gov. Mitt Romney, now the front-runner in the Republican presidential contest. Romney in October suggested the foreclosure process should be allowed to "run its course and hit the bottom."
Without naming Romney, Obama said: "It is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom. I refuse to accept that, and so do the American people."
Obama is asking Congress to pass legislation that would make it easier for more borrowers to refinance their loans, creating a new program through the Federal Housing Administration that would have the government assume the risk for the new mortgages.
Obama cast the effort as not only a needed step to spur the economy but as a necessary boost to America's sense of identity.
"This housing crisis struck right at the heart of what it means to be middle class in America: our homes, the place where we invest our nest egg, place where we raise our family, the place where we plant roots in a community, the place where we build memories," Obama said. He spoke at a community center in northern Virginia, outside Washington.
Obama's proposal is the latest administration effort to help homeowners in the face of a massive number of foreclosures and plunging house values that have left millions owing more than their homes are worth.
Banks have been reluctant to refinance loans of such "underwater" homeowners. Under Obama's plan, an eligible homeowner would be able to refinance a loan through the FHA, which would guarantee the new loan, assuming the risk if the borrower should default. The fee on large banks that Obama is proposing would finance the FHA's insurance fund.
The plan faces long odds in Congress. Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, said the refinancing plan proposes "to get out of the hole we're in by digging deeper."
"He wants lenders to make more of the same risky loans without documentation of income or ability to repay that got us into this mess in the first place," Bachus said.
Seeking to reassure such skeptics, Obama emphasized that the program would apply only borrowers who have been current on their payments for at least six months and not missed more than one payment in the six months preceding that. Their loans would have to fall within the mortgage limits set by the FHA in their home counties — a range from $271,050 in lowest cost areas to $729,750 in the highest cost areas.
The plan, Obama said, would "not help the neighbors down the street who bought a house they couldn't afford and then walked away and left a foreclosed home behind."
The administration estimates that 3.5 million borrowers with privately held mortgages have high enough interest rates that they would have incentive to refinance their mortgages through the FHA.
That's in addition to 11 million borrowers who have loans guaranteed by the government-affiliated mortgage giants, Fannie Mae and Freddie Mac, who could be eligible for refinancing under the administration's proposed changes.
Still, economists say that without reducing the burden on homeowners who are late on their payments, any new housing program will achieve little.
"Anyone who is already behind on their mortgage payments, and is therefore much closer to actually losing their home, won't benefit," said Paul Dales, senior U.S. economist at Capital Economics. "As such, the policy won't do anything to reduce the mountain of 3 million homes that are still at risk of foreclosure."
Bankers oppose Obama's proposal to impose a fee on large banks to pay for the program and Obama has been unable to win support for such a fee in Congress.
Frank Keating, president and CEO of the American Bankers Association, said such a fee would "directly reduce lending capacity." And Brian Gardner, a senior vice president at Keefe, Bruyette and Woods, a Washington investment bank, called the proposed bank tax a "poison pill" for the legislation.
Keating also referred to the refinancing plan as "uncoordinated" and part of a collection of ever-changing government programs that "create uncertainty in the market, increase the cost of homeownership and reduce credit availability needed to support homeownership and the economic recovery."
Administration officials said Obama was open to other means of paying for the program if the bank fee becomes too much of an obstacle.
About 11 million Americans — roughly one in four with mortgages — 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.
Past administration initiatives have fallen short of expectations. For instance, an earlier plan, the Home Affordable Refinance Program, which allows borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at lower rates, has helped about 1 million homeowners, well short of the 4 million to 5 million the administration had expected.
"I'll be honest, the programs we've put forward didn't work at the scale we'd hoped," Obama said. "Not as many people have taken advantage of it as we wanted."
Obama also announced new industry standards for mortgage servicers, a sort of "bill of rights" for borrowers that would protect them in their transactions. During his remarks, Obama brandished a simpler, three-page loan document to illustrate the new standards.
The administration will also undertake a program that would allow the sale of foreclosed homes by Fannie Mae to investors who would then offer the properties for rental.
"As we know and a lot of families know," Obama said, "that empty house or 'for sale' sign down the block can bring down the price of homes across the neighborhood."
AP Economics Writer Derek Kravitz contributed to this report:
Administration's sample loan document: http://www.consumerfinance.gov/wp-content/uploads/2012/01/Jan2012_Estimate_Honeylocust.pdf