US Pledges $50 Billion to Fight Foreclosures, But Is It Enough?

by Tina Kells | February 10, 2009 at 01:09 pm

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The United States pledged $50 billion to fight off foreclosures in the face of "the worst economic crisis in generations" (Geithner) but it may not be enough. As the economy falls and more jobs are lost fear is growing in the real estate sector that there will be even more carnage in the housing market. Fannie Mae and Freddie Mac announced that if things get much worse they alone will need $200 billion to stop the bleeding.

"We will soon be announcing a comprehensive plan" that among others will drive down overall mortgage rates, the Treasury said.
The government will "commit 50 billion dollars to prevent avoidable foreclosures of owner-occupied middle class homes by helping to reduce monthly payments in line with prudent underwriting and long-term loan performance," it said.

To drive down mortgage rates, the authorities remained committed to spend as much as 600 billion dollars for purchasing of mortgage-backed securities and debt, it said.

The companies’ needs will depend largely on the direction of home prices, Lockhart said in an interview in Las Vegas yesterday. His comments followed statements from Fannie Mae in November and Freddie Mac Chairman John Koskinen last week that the government’s funding commitment through 2009 may fall short of what the companies need to make good on their obligations.
“When we sized the amount in September, we obviously looked at stress tests and what was happening in the marketplace,” Lockhart said. “There’s been some significant events since then that weren’t in our forecast.”

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a Feb. 3 report from Zillow.com.