President Barack Obama unveiled a $75 billion plan in Arizona today (Wed., Feb. 18) to keep as many as 9 million Americans from losing their homes to foreclosure.
Obama said that turning around the battered economy requires stemming the continuing tide of foreclosures. The housing crisis that began last year set many other factors in motion and helped lead to the current, widening recession.
More expensive than expected, Obama’s plan aims to keep between 7 million and 9 million people from foreclosure. Of the nearly 52 million U.S. homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody’s Economy.com.
Headlining Obama’s plan is a $75 billion Homeowner Stability Initiative, which would provide a set of incentives to mortgage lenders in an effort to convince them to help up to 4 million borrowers on the verge of foreclosure. The goal: cut monthly mortgage payments to sustainable levels, defined as no more than 31 percent of a homeowners income. Funding would come from the $700 billion financial industry bailout passed by Congress last fall.
Another key component would specifically help those said to be “under water” — with dwellings whose market value have sunk below the principal still owed on the mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 million to 5 million families do just that — if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.
Housing Secretary Shaun Donovan stressed that homeowners don’t need to be delinquent in order to get help.
Asked why the cost had jumped to $75 billion from initial talk of a $50 billion effort, Geithner said, “We think that’s necessary to make a program like this work.”
And he said relief would be almost instantaneous, basically as soon as rules are published March 4.
The biggest players in the mortgage industry already had halted foreclosures pending Obama’s announcement.
“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly,” Obama said. “It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans.”
Information from the Associated Press contributed to this report.