President Obama is urging Congress to pass a bank tax, funneling the money over to the Federal Housing Administration which will then refinance non-GSE borrowers who are under water on their loans.
Wednesday morning the White House released certain details of its latest refi plan, opening up the initiative to borrowers with a minimum credit score of 580 and loan-to-value ratio of up to 140%. But there is one catch: these mortgagors must be current on their existing loan.
For loans with LTVs above 140%, lenders would have to write down the principal before refinancing, according to a White House fact sheet released to the media.
This plan will "help millions of responsible homeowners who make their payments on time but find themselves trapped under falling values or wrapped in red tape," President Obama said at a rally in Falls Church, Va., Wednesday morning.
The White House estimates FHA will need $5 billion to $10 billion to fund this new refi program for private mortgages and create a separate mortgage insurance fund.
"This will help the FHA better track and manage the risk involved and ensure that it has no effect on the operation of the existing [FHA] Mutual Mortgage Insurance Fund," a White House fact sheet says.
To get the program off the ground, Congress will have to pass legislation that authorizes FHA to refinance higher LTV loans along with the proposed bank tax to fund the program.
The President calls the tax the "Financial Crisis Responsibility Fee,” noting that it will be imposed on the "largest institutions based on their size and the riskiness of their activities.”
Washington insiders consider the bank tax a "non-starter" in the Republican-controlled House of Representatives.
Rep. Scott Garrett, R-N.J., said the government's refinancing and loan modification programs have been "hopelessly ineffective" and it's time to try private sector solutions.
"Until the president gives up his crusade to increase the government's interference in the housing market, home foreclosures will continue to rise, our economy will continue to falter and every American's share of the national debt will continue to grow,” the chairman of the House GSE and Capital Markets subcommittee said.