FALLS CHURCH, Va. — Putting meat on the bones of a State of the Union pledge, President Barack Obama unveiled a controversial plan Wednesday to help homeowners who are current on their mortgage payments refinance their mortgages into federally insured loans at today's extremely low rates.
The plan seeks to help home- owners who are unable to take advantage of low lending rates because they owe more than their home is now worth, a predicament known as being "underwater" on their mortgage.
"If you're ineligible for refinancing just because you're underwater on your mortgage, through no fault of your own, this plan changes that," Obama said during a speech in this Washington suburb. "You will be able to refinance at a lower rate. You'll be able to save hundreds of dollars that you can put back into your pocket."
Obama went to great pains to stress that the new program aims to help responsible homeowners who are hurt by falling home prices and not those buyers who overreached and bought more than they could afford.
In either case, millions of homeowners across the country are trapped in homes worth less than the mortgage they carry, and thus are unable to refinance to improve their cash flow.
Obama estimated annual savings of up to $3,000 for individual homeowners able to tap his plan. However, they would still own a home worth less than its mortgage and taxpayers would be at risk if these homeowners eventually walked away from their new loans.
The program's cost is estimated at $5 billion to $10 billion. To pay for it, Obama proposed a tax on the nation's biggest banks. Republicans who control the House of Representatives have already balked at that idea, making it likely that the proposal will become little more than a political hammer for each side to swing at the other.