In State of the Union speech, Obama proposes easier mortgage refinancings

Continuing to see mortgage refinancing as the road to recovery, President Barack Obama laid out an ambitious new plan for distressed homeowners to help spur the nation’s housing market in his State of the Union address.

Bloomberg News reported that Obama will send legislation to Congress that would make it easier for all “responsible” homeowners to refinance at near record-low rates, a move that could save the average participant about $3,000 annually. The legislation is an expansion of Obama’s existing Home Affordable Refinance Program (HARP), according to Trulia, as it would extend eligibility to the 2.5 million underwater borrowers without government-backed loans.

Obama said it would reduce obstacles for American homeowners who have been unable to refinance because their mortgages are worth more than their homes. But the proposal would still only apply to homeowners who are current on their mortgages.

The plan would be funded by imposing a “small fee” on large financial institutions with at least $50 billion in assets.

Obama’s proposal answered Federal Reserve Chairman Ben Bernanke’s call for more government involvement in the housing market, but didn’t go so far as to reduce the principal balances on struggling borrowers’ homes, which some analysts suggest is the only effective way to hasten the speed of the recovery. Analysts interviewed by Bloomberg were divided on whether the legislation would ultimately be passed.

The president also created a new mortgage abuse investigative unit in his speech last night, and tapped New York Attorney General Eric Schneiderman to lead it. [Bloomberg] and [Trulia]