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Obama Proposes New Lending Oversight, Refi Modifications

""President Barack Obama"":http://www.whitehouse.gov/administration/president-obama used his State of the Union address Wednesday to tout his accomplishments and propose several new housing ventures, including possible expansions to refinance programs, consumer financial protection, and new federal initiatives to combat abusive lending practices.

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The speech weighed in on risky lending practices in particular and went after Republicans for their opposition to his policies, including consumer financial protection.

He said that he would ""fight obstruction with action, and... oppose any effort to return to the very same policies that brought on this economic crisis in the first place.""

The statement made a veiled reference to ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov/ (CFPB) director Richard Cordray, who bypassed the Senate in a recess appointment by the president in early January, drubbing up calls for legal redress from trade groups around the industry.

In line with Cordray's acknowledgement, Obama used his primetime address to propose a new unit at the ""Justice Department"":http://www.justice.gov/ to investigate abusive lending practices and risky mortgage loans.

He said the unit, comprised of federal prosecutors and state attorneys general, would help ""hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.""

Tim Rood, a partner with ""The Collingwood Group"":http://www.collingwoodllc.com/team.html and former executive with Fannie Mae, says that new investigations from the administration may give pause to big lenders and servicers, which news reports suggest will likely sign off on an historic $25-billion settlement with attorneys general from the hardest-hit states.

""If there's a bigger, looming, more ambiguous threat from this new department, then it would give you pause to sign off on a $25 billion settlement with the attorneys general,"" he says. ""It calls into question why we would sign off on a mega settlement if it doesn't end there.""

Housing featured prominently in the address Wednesday, with the president saying that ""responsible homeowners shouldn't have to sit and wait for the housing market to hit bottom to get some relief.""

A proposal to help homeowners refinance and save about $3,000 a year suggested that Obama would recommend new

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modifications to the ""Home Affordable Refinance Program"":http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx (HARP), which he expanded last fall by lifting loan-to-value ratios for borrowers with government-backed mortgages.

""No more red tape,"" he said. ""No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.""

Experts remain on the sidelines about what an expanded refinance initiative would mean for the market and economy at large.

""The effort to refinance non-government-backed loans into [Federal Housing Administration]-backed loans has pluses and minuses,"" says ""Greg McBride"":http://www.bankrate.com/blogs/federal-reserve/about-greg-mcbride-cfa.aspx, a senior financial analyst with real estate finance Web site ""Bankrate.com"":http://www.bankrate.com/. ""It would open the door to refinancing for borrowers currently shut out, but it puts more risk on the back of the taxpayer.""

He warns that any move to accommodate private loans at the FHA could put taxpayers ""on the hook for any loans that default.""

The FHA remains under scrutiny for failing to meet a 2-percent capital ratio buffer required by federal law. A report by ""Joseph Gyourko"":http://real-estate.wharton.upenn.edu/people/faculty.cfm?id=805, a real estate finance professor at the University of Pennsylvania, cast doubt on the agency by highlighting that it carries only $2.6 billion in reserves for more than $1 trillion in insurance-in-force.

Rood says that mass refinance programs ultimately fail to resolve problems of demand in the housing market.

""It's not an affordability crisis, it's a demand crisis,"" he tells us.

Amid possible new modifications to HARP, Obama affirmed his role as an Oval Office occupant responsible for slashing costly and unnecessary regulation. He said that he had announced more than 500 reforms, saving businesses and taxpayers more than $10 billion in five years.

The theme echoed recent attempts by the president to reorganize federal agencies and remarks by officials like Cordray, who told House lawmakers during his first committee hearing Wednesday that he wanted to take a fresh look at duplicative rules and guidance.

Greg Hernandez, a spokesperson with the ""FDIC"":http://www.fdic.gov/ ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the inspector-general for which Congress recently tasked with investigating the role that rules may have played in bank failures ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô declined to comment about what any references to regulatory reform may mean for the agency.

Media outlets framed the address as one in which Obama deplored conservative proposals in favor of some that stem from a more liberal tradition.

Speaking to lawmakers and policymakers, he said that hard-working Americans ""deserve a government and a financial system"" that play by the same rules as they.

""It's time to apply the same rules from top to bottom,"" he said. ""No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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