A program to help homeowners save $3,000 a year by clearing away obstacles to refinancing was proposed by President Obama in last night's State of the Union address. What isn't clear is how that plan might work.

In Tuesday night's speech, the president said he was proposing legislation that would give "responsible homeowners" the chance to refinance their mortgages at historically low rates. Based on current figures, that would be less than 4 percent on a 30-year fixed-rate mortgage.

However, administration officials today declined to provide details of the plan, and it isn't clear when the actual legislation will be put forward. Given the president's remarks, though, it appears that it will be yet another effort to enable "underwater" homeowners to refinance their mortgages despite owing more than their property is worth.

HARP changes not yet fully in effect

The announcement comes even as the administration's latest effort to help underwater homeowners has yet to fully take effect. As of Dec. 1, rules for the administration's Home Affordable Refinance Program (HARP) were changed to allow homeowners to regardless of how far underwater their mortgages are - the previous limit was a loan balance of no more than 125 percent of their home value. Changes intended to make it easier for borrowers to refinance an underwater mortgage with a lender other than their current mortgage servicer were also adopted.

However, many banks are still in the process of implementing those changes and few mortgages are expected to be approved for refinancing under the new rules before March 1.

Will Congress go along?

The creation of the original HARP program and subsequent changes were done by administrative order. This time, Obama says he is sending legislation to Congress, which suggests a more substantial change to boost the program's clout. However, it's unclear whether Congress will go along in an election year, particularly in light of the skepticism many Republican members have shown toward the administration's previous efforts to intervene in the housing market.

It's also unclear how Obama's proposal might relate to an expected settlement the Justice Department and state attorneys general are expected to reach with major mortgage servicers over complaints related to the improper foreclosure practices that gave rise to the robo-signing scandal.

That settlement, said to total some $20-$25 billion, would reportedly be used to help promote loan modifications and mortgage refinancing for underwater homeowners and those in financial difficulty, and there were reports that Obama would announce the settlement during the State of the Union address. However, such a settlement would not require congressional approval, and the president said his new proposal would be submitted to Congress.

Published on January 25, 2012