Obama's refinancing plan doesn't go far enough for some

The housing industry has been appealing for a coherent policy that will end the market's five-year-old downturn and get real estate moving.

What President Obama offered Tuesday night in his State of the Union address, though welcomed by many, does not appear to be all the industry had in mind.

The President proposed to allow up to four million homeowners to refinance into loans guaranteed by the Federal Housing Administration, an action Obama said would save individuals an average of $3,000 annually.

Eligible would be mortgages not held by Fannie Mae and Freddie Mac, but by other companies. In October, the administration added an FHA-guaranteed refinancing program for a potential one million Fannie and Freddie borrowers who owe more on their mortgages than the value of their houses.

It was unclear whether the plan Obama offered Tuesday night would target such "underwater" borrowers, as well. The program's estimated $10 billion cost would be paid through fees from lenders.

The proposal requires approval by Congress, since the law limits the ability of FHA to refinance loans exceeding the current value of a home.

"The odds of this getting through Congress with a levy on financial institutions are low," said Mark Zandi, chief economist of Moody's Analytics in West Chester. There are growing concerns about the financial health of FHA, which, since the financial meltdown of 2008 has been guaranteeing an ever-increasing share of U.S. mortgages - about one-third of them now compared with just 3 percent in 2005, during the easy-money years of the housing boom.

Though acknowledging that something needs to be done, Joel L. Naroff, of Naroff Economic Advisors in Holland, Bucks County, said he isn't certain the proposal would increase demand for housing and increase home prices.

"I don't know the details of the plan, [but] if it doesn't include a reduction in value, you still have underwater households who cannot sell their homes, so the positive effects are largely on consumer demand," he said.

Naroff agreed that asking the banking industry to finance the program through fees has little chance of congressional approval.