May 12th, 2011
11:55 AM ET
By CNNMoney Senior Writer Jennifer Liberto -
Calling housing "the biggest headwind on the economy right now," Obama broached two relatively new ideas for the White House: Longer-term mortgage modifications and principal reductions "in some cases."
Both ideas would require Congress to pass laws to force the banks to cooperate.
"If we were there for you [banks] when you got into trouble, then you've got to be there for the American people when they're having a tough time," Obama said during the CBS program which was taped on Wednesday.
In response to a question posed by Nancy Logan of Virginia, an underwater homeowner whose three-year mortgage modification will expire in January 2012, Obama said that reducing some mortgage principals would benefit the banks as well as homeowners.
Obama's mention of principal reduction, in particular, is sure to stir Wall Street banks. When Obama campaigned, he had talked about pushing for policy to give bankruptcy judges the ability to write down principal owed on homes whose owners are bankrupt.
But when he took office, the president stood on the sidelines of legislation that would have allowed principal reductions, and his administration said that current housing policy was good enough.
Since then, the president rarely, if ever, publicly discussed principal reductions.
Big banking groups have traditionally lobbied hard against any new policy that would open the door for more principal write downs.
At least one banking group said they weren't opposed to a policy that would open the door for mortgage modifications that spanned longer periods, but they can't support legislation that invites more principal write downs.
"Banks are committed to helping Americans struggling with their mortgage," said Scott Talbott, senior lobbyist with the Financial Services Roundtable, a bank lobbying group. "Banks have already worked directly with over 4 million Americans to make long-term mortgage modifications."
During the town hall, Obama also defended his administration's housing programs, which one independent inspector general had criticized as a failure. House Republicans passed a bill to kill the administration programs that give banks incentives to modify mortgages.
"The problem is .. that the need is so great. So it's like you have a huge pothole, and you only have so much gravel," Obama said. "If you're talking about $5 trillion worth of home value, and a program that only has a few billion dollars, then there are a lot of people who are not going to be helped."