Obama Proposes Package to Stave Off Foreclosures
Thursday, February 19, 2009
MESA, Ariz., Feb. 18 -- President Obama unveiled a foreclosure-prevention package Wednesday that would pour more than $75 billion into arresting one of the root causes of the nation's economic spiral by helping as many as 9 million homeowners obtain more affordable mortgage terms.
The package, part of the Obama administration's multibillion-dollar effort to jolt the nation out of its deepening recession, goes beyond what some analysts had expected and was welcomed by many of the nation's top lending institutions. But it also drew criticism from some housing experts and consumer advocates, who argued that it does not go far enough in addressing some critical aspects of the foreclosure crisis. Many key details of the plan will not be released until early next month.
Speaking to a crowd packed into a high school gymnasium here, Obama said the mortgage plan would help all Americans confronted with rapidly eroding property values by helping those in danger of losing their homes.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly, by refinancing loans for millions of families in traditional mortgages who are underwater or close to it," he said.
The three key elements of the proposal include a program that would allow 4 million to 5 million homeowners with little equity in their homes to refinance into cheaper mortgages; a $75 billion program to keep 3 million to 4 million homeowners out of foreclosure; and a doubling of the government's commitment to Fannie Mae and Freddie Mac to $400 billion.
It is the largest federal foreclosure-prevention package in decades, and it would rely on a series of incentives to jump-start fledgling efforts to keep millions of distressed borrowers in their homes. It is the first major government program aimed at homeowners who are current on their loans, and it would require large banks that have received government bailout money to abide by industry standards for loan modifications established by the Obama administration.
About one in 10 homeowners were delinquent on their mortgages late last year, and as many as 6 million homes could go into foreclosure during the next three years without this program, said Shaun Donovan, secretary of housing and urban development, adding: "We believe we can help a very large share of these."
The administration estimates that simply by reducing foreclosures, the plan could stop the slide in home prices by as much as $6,000 per property.
"The effects of this crisis have also reverberated across the financial markets. When the housing market collapsed, so did the availability of credit on which our economy depends," Obama said. "As that credit has dried up, it has been harder for families to find affordable loans to purchase a car or pay tuition, and harder for businesses to secure the capital they need to expand and create jobs."
While some of the measures Obama announced can be implemented by government regulators, others will require congressional approval. For example, a key part of the package includes legislation that would bankruptcy law to allow judges to modify the mortgages of distressed homeowners, including by reducing the principal of the loan to the property's current market value.
While broad, the package does not tackle some key issues, critics said, noting that it does not include a plan for dealing with second mortgages, which often become a stumbling block for mortgage-modification programs. Others pointed out that for many lenders, the program would be voluntary.
"This is a major step forward to addressing the foreclosure crisis," said John Taylor, president of the National Community Reinvestment Coalition. "But the plan may not be aggressive enough. While the plan offers sweeteners to encourage lenders and homeowners to participate, its voluntary nature may blunt its impact."