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Q&A on Obama administration's mortgage-aid plan

WASHINGTON — The Obama administration is offering some relief to military service members, veterans and homeowners who have government-backed mortgages. Under a program President Barack Obama unveiled at a news conference Tuesday, the government would cut the fees it charges to insure those borrowers.

The idea is that lower fees would persuade millions to refinance their loans while interest rates are near record lows. It's the administration's latest attempt to minimize the damage from the foreclosure crisis and help more people keep their homes.

For service members and veterans, Obama says major lenders will review foreclosures or denials of lower interest rates. If wrongly foreclosed upon, service members will be paid their lost equity and receive additional compensation.

What has the administration proposed?

Borrowers with mortgages insured by the Federal Housing Administration could refinance at half the current fee. A lower fee would follow years of rising mortgage insurance premiums. FHA is also reducing an up-front premium when it initiates a loan. The FHA charges the fees on top of standard interest rates because it backs riskier borrowers.

Who's eligible?

The administration estimates 2 million to 3 million homeowners. Most are first-time or low-income home buyers. The FHA requires only a 3.5 percent down payment. And borrowers don't have to prove that they're employed. FHA borrowers can also refinance even if they're "underwater," or owe more on their mortgage than their home is worth.

How much will those who get the reduced fees actually benefit?

The fee is now 1.15 percent of the mortgage balance each year. Those fees are unappealing to many borrowers who want to refinance. The plan would cut the fee to 0.55 percent. The current up-front premium would also be lowered, from 1 percent of the loan balance to .01 percent. As a result, a borrower who owed $175,000 on their mortgage could save about $1,750 in one-time fees and more than $1,000 per year in annual fees by refinancing. The borrower could save nearly $150 a month more if the interest rate declined from 5 to 4 percent.

How will military service members be helped?

The administration has struck an agreement with various banks and lenders to conduct a review of foreclosure practices for military members. Any service member or veteran whose home has been wrongly foreclosed on since 2006 will receive compensation equal to a minimum of $116,785 plus any home equity lost since the foreclosure. This compensation will come from the mortgage servicers who conducted the foreclosures. In addition, any service member who was wrongly denied the opportunity to refinance will receive a refund of money lost.

Will it work?

Possibly, if the reduced fees are well-advertised and borrowers are confident of saving on their mortgage payments by refinancing. If homeowners are wary of paying even a small amount to refinance, the program could fail to reach millions who are eligible. Economists said the lower fees are a modest way to help the troubled housing market but won't turn it around. Stan Humphries, chief economist at the real estate website Zillow.com, predicted that the separate plan to compensate military service members who were wrongfully foreclosed upon would be a big help to that group. It's unclear how many would benefit.

Information from the Washignton Post was used in this report.

Highlights from Obama's news conference

SYRIA: Unilateral military action by the United States against the regime of Syrian President Bashar Assad would be a mistake, Obama said. The situation in Syria is more complicated than it was in Libya, he said. Obama has resisted calls to get drawn into the turmoil in Syria to stop Assad's bloody crackdown on protesters. More than 7,500 people have been killed there. Obama said that the international community has not been able to muster a campaign against Syria like the one in Libya that ousted Moammar Gadhafi last year. Russia has blocked a U.N. Security Council resolution against Assad's regime. Obama's strategy has been to use sanctions and international diplomatic isolation to pressure Assad into handing over power.

RUSH LIMBAUGH: Obama invoked his daughters, Sasha and Malia, when he was asked whether he believed Rush Limbaugh's apology over the weekend to Sandra Fluke, the law student at the center of the contraception controversy whom Obama called last week. Limbaugh called her a "slut" and a "prostitute" on his radio show. "I don't know what's in Rush Limbaugh's heart, so I'm not going to comment on the sincerity of his apology," Obama said. He said he thought about his young daughters when he called Fluke because "one of the things I want them to do as they get older is to engage in issues they care about, even ones I may not agree with them on. I want them to be able to speak their mind in a civil and thoughtful way. And I don't want them attacked or called horrible names because they're being good citizens."

GAS PRICES: He said his administration continues to look at measures to bring down gasoline prices, including looking at bottlenecks in refineries around the country. He said he has also asked Attorney General Eric Holder to reconstitute a task force to look at the role of speculation in the oil market.

REPUBLICAN RIVALS: Asked what he would say to Mitt Romney, whom a reporter noted has called Obama the "most feckless president since Carter," Obama laughed and replied with a reference to the Super Tuesday primaries, "Good luck tonight."

Information from the Associated Press and Washington Post was used in this report.

Highlights from Obama's news conference

SYRIA: Unilateral military action by the United States against the regime of Syrian President Bashar Assad would be a mistake, Obama said. The situation in Syria is more complicated than it was in Libya, he said. Obama has resisted calls to get drawn into the turmoil in Syria to stop Assad's bloody crackdown on protesters. More than 7,500 people have been killed there. Obama said that the international community has not been able to muster a campaign against Syria like the one in Libya that ousted Moammar Gadhafi last year. Russia has blocked a U.N. Security Council resolution against Assad's regime. Obama's strategy has been to use sanctions and international diplomatic isolation to pressure Assad into handing over power.

RUSH LIMBAUGH: Obama invoked his daughters, Sasha and Malia, when he was asked whether he believed Rush Limbaugh's apology over the weekend to Sandra Fluke, the law student at the center of the contraception controversy whom Obama called last week. Limbaugh called her a "slut" and a "prostitute" on his radio show. "I don't know what's in Rush Limbaugh's heart, so I'm not going to comment on the sincerity of his apology," Obama said. He said he thought about his young daughters when he called Fluke because "one of the things I want them to do as they get older is to engage in issues they care about, even ones I may not agree with them on. I want them to be able to speak their mind in a civil and thoughtful way. And I don't want them attacked or called horrible names because they're being good citizens."

GAS PRICES: He said his administration continues to look at measures to bring down gasoline prices, including looking at bottlenecks in refineries across the country. He said he has also asked Attorney General Eric Holder to reconstitute a task force to look at the role of speculation in the oil market.

REPUBLICAN RIVALS: Asked what he would say to Mitt Romney, whom a reporter noted has called Obama the "most feckless president since Carter," Obama laughed and replied with a reference to the Super Tuesday primaries, "Good luck tonight."

Information from the Associated Press and Washington Post was used in this report.

Q&A on Obama administration's mortgage-aid plan 03/06/12 [Last modified: Tuesday, March 6, 2012 11:49pm]

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