Obama unveils $275 billion foreclosure plan

Agence France-Presse

Posted at Feb 19 2009 01:59 AM | Updated as of Feb 19 2009 07:51 PM

PHOENIX – US President Barack Obama Wednesday took aim at the housing crisis which helped tip the US economy into meltdown, with a program which could cost $275 billion and reach nine million homeowners.

Obama opened the new front in the broad battle against the economic crisis, a day after signing a huge $787-billion stimulus plan into law and as he simultaneously attempts to restructure the debilitated US auto industry.

"All of us are paying a price for this home mortgage crisis and all of us will pay an even steeper price if we allow this crisis to continue to deepen," Obama said as he unveiled the plan in Arizona, one of the states worst hit by the crisis.

"When the housing market collapsed, so did the availability of credit on which our economy depends.

"We will help between seven and nine million families restructure or refinance their mortgages so they can avoid foreclosure," Obama said.

Treasury officials said the plan could reach or make affordable one-and-a-half trillion dollars in mortgage debt and deal with a large proportion of the six million foreclosures expected over the next four years.

The plan includes incentives for lenders to help debtors who cannot make monthly payments but also cannot sell their homes due to negative equity, to lower mortgage payments to no more than 31 percent of their income.

The plan will see the Treasury Department double its financial support to troubled mortgage finance giants Fannie Mae and Freddie Mac, to $200 billion each, in an effort to stabilize the real estate sector.

A $75-billion initiative will target those who cannot afford to pay their mortgages and have seen the price of their properties plunge so cannot sell them and move into cheaper accommodation.

The initiative also aims to help families who put money down on homes and met their regular payments, yet cannot take advantage of refinancing made attractive by low mortgage rates because the value of their homes have sharply dropped.

US stock markets shrugged off the new housing plan, a day after the Dow Jones Industrial Average fell 3.79 percent on pessimism that the stimulus plan and new housing strategy would lead the economy out of recession.

At 1615 GMT, the Dow was down 12.18 points (0.16 percent) to 7,540.42 after posting marginal gains at the opening hour and the tech-heavy Nasdaq was up 2.45 points (0.17 percent) to 1,473.11.

Treasury Secretary Timothy Geithner told reporters here that the plan would not only awake the slumbering housing market, but would also help reignite the broader economy.

"This is necessary policy, it is smart economics and it is just and fair," he said.

"By helping keep mortgage rates down, and helping reduce monthly payments, you are putting money in the hands of Americans, in that case it acts like stimulus."

Officials said the plan would not benefit irresponsible homeowners who took out bigger loans than they can afford, or banks that took dangerous risks or speculators who helped build the housing bubble.

"Let us be clear, housing has been a significant part of initiating the economic slide we are in and will be a key part of getting us out," said Housing and Urban Development Secretary Shaun Donovan.

"This is a smart targeted investment which can reach and help to make more affordable more than one-and-half-trillion dollars of mortgage debt."

"It is of a scale that can have a real impact."

The program, like other aspects of Obama's attempts to clean up the debt-laden finance industry, relies heavily on lenders to thaw out credit which has been frozen during the deepest economic crisis since the 1930s.

"This program creates pretty powerful incentives for initiatives by the servicers to move," said Geithner.

"We think it will change behavior on a significant scale."

The far western state of Arizona was an appropriate spot for Obama to roll out his program, as cities here expanded quickly during the housing boom, but have now fallen deep into trouble as the mortgage crisis expands.

In 2008, there were 117,000 foreclosure notices received in Arizona, making it the third worst-hit state in America, according to the online realty market firm RealtyTrac Inc.

Obama will unveil his initiative after two US banks -- JPMorgan Chase and Citigroup -- and mortgage finance giants Fannie Mae and Freddie Mac agreed last week to suspend home foreclosures.