The largest banks are looking at $5 billion and $10 billion in costs for a new mortgage refinance plan the White House would send to Congress. President Obama announced a plan to allow private label mortgages, those who are not guaranteed by Fannie Mae and Freddie Mac, to refinance through the Federal housing Administration.

 "I want to be clear: this plan, like the other actions we’ve taken, will not help the neighbors down the street who bought a house they couldn’t afford, then walked away and left a foreclosed home behind. It will not help those who bought multiple homes just to speculate and make a quick buck," Obama said in a speech at Falls Church, Va. Wednesday.

"What this plan will do is help millions of responsible homeowners who make their payments on time but find themselves trapped under falling home values or wrapped in red tape." Homeowners who have been up to date with their mortgage for the past six months and have not missed more than one payment in the last year will be able to qualify. Qualifying homeowners must also possess a credit score of at least 580; the White House states that an estimated nine in ten borrowers have a credit score that would meet the criteria.

 The current mortgage may also not exceed the FHA conforming loan limits which were put back to the previously lifted level in November. Mortgage cannot be more than $271, 050 in the lowest cost areas, and cannot be more than $729,000 in the most expensive neighborhoods. On Tuesday the White House also stated that they would work with Congress to make clear guidelines for banks looking to refinance borrowers underwater and those with loan to value ratios above 140%.

The fee charged to banks will be based on "their size and riskiness of their activities," according to the White House. Appraisal costs have been eliminated and the plan will direct Freddie and Fannie to apply require the same procedure of new servicers as larger ones to give more competition for homeowners searching for the lowest rate. The Federal Housing Finance Agency took away restrictions on the Home Affordable Refinance last year to help more underwater homeowners refinance.

The program has allowed an estimated 900, 000 borrowers to refinance into lower rate loans. In addition to the HARP, Isaac Boltansky, an analyst at Compass point, said estimates show another 3.5 million homeowners would be eligible for the new program. "Opponents will coalesce around their opposition to expanding the FHA's balance sheet and, thereby, the expansion of the government's risk exposure to the mortgage market," said Boltansky said.

Allie Zehring

Source:Housingwire