A senior administration official says President Barack Obama will give banks a new tool to refloat mortgage loans in the U.S. if they can prove they have sufficient reserves.
A White House spokesperson said Thursday that the White House is currently reviewing the details of a proposal by the Treasury Department that would let banks lend to borrowers who have less than $500,000 in assets, including those with student loans, people who have been out of work for a year or more and others who have no other way of paying their mortgage.
The proposal is being considered as part of a broader effort by the Obama administration to make it simpler for borrowers and lenders to reflow loans, the official said.
Under the proposal, borrowers would have to submit proof of their assets, such as a bank statement or a bank loan application, as well as a list of borrowers that have been approved for the program, including people with student loan debt.
The person who approved a borrower for the new program would then have to pay interest on that loan and any other remaining principal, as long as they still have enough to pay the full amount on their mortgage, the administration official said on condition of anonymity.
The Obama administration previously has tried to make refinancing easier for people with higher-than-average credit scores by allowing them to refluff loans with a $5,000 down payment, though those with more modest credit scores would need to refline the loans themselves.
The new program, however, would allow a borrower to refliab a mortgage loan with up to $5 million.
The new plan is likely to face fierce opposition from mortgage lenders, who worry that it will open the door to borrowers with more severe credit scores who can easily get into the program.
The president’s goal is to encourage homeowners to reflay mortgages so that they can save for a down payment and get a better return on their investment, the senior administration source said.
The White House official said it is possible the administration will eventually adopt the proposal for all borrowers, regardless of their credit scores.
It is unclear when the administration plans to make the change, however.
The official said the administration has been working with banks on how to make their own refinancing program easier for them, and the current proposal could become the basis for a future effort to make refloating easier.