Despite rumors earlier in the week that President Barack Obama would announce a settlement between the state attorneys general and the nation's top servicers in his State of the Union address, the president made no such announcement Tuesday night.
However, he did announce his intention to save millions of homeowners approximately $3,000 annually on their mortgages by allowing them to refinance at today's low interest rates.
Obama also plans to create a Financial Crimes Unit to protect consumers from fraud schemes.
""[I]f you're a mortgage lender or a payday lender or a credit card company, the days of signing people up for products they can't afford with confusing forms and deceptive practices are over,"" Obama said. ""Today, American consumers finally have a watchdog in Richard Cordray with one job: To look out for them.""
Obama will also enlist the help of the nation's attorney general to assemble a team to investigate ""the abusive lending and packaging of risky mortgages that led to the housing crisis.""
""This new unit will 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,"" the President stated.
While Obama did not go into detail on his refinance proposal, it appears the major difference in his new
proposal and the government's Home Affordable Refinance Program (HARP) is that the new program would allow homeowners with loans not guaranteed by Fannie Mae, Freddie Mac, of the FHA to refinance.
The program would be funded by a ""a small fee on the largest financial institutions,"" which would ""ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust,"" Obama stated.
""In short the President is suggesting that the banks permanently pay a chunk of some households' monthly mortgage payments,"" said Paul Dales, senior economist at Capital Economics.
Dales called Obama's proposal ""another policy that tinkers at the margins rather than striking at the heart of the problems that are holding back housing and the wider economy.""
If the proposal is not staved off by Republicans, who according to Dales, ""already think the government is too involved in housing,"" it will likely have little effect on the market, Dales said.
It is projected to increase GDP by 0.1 percent at most Ã¢â‚¬" ""even smaller if, much like previous policies, it fails to live up to expectations,"" Dales said.
As with HARP, some homeowners may not be able to take advantage of the program because of up-front fees, and the program would do nothing to aid struggling homeowners who have fallen behind on payments, according to Dales.
While Dales suggested Republicans are unlikely to support the refinance program, Barclays points out that the program would not necessarily require Congressional approval.
""For example, the government (through the GSEs) could announce a blanket one-time waiver of reps and warranties for agency-backed loans that banks refinanced,"" Barclays said.
""Banks would be only too happy to get out of the putback risk and would aggressively refi the borrowers they can.""
Such a plan would not require congressional approval.