Obama Announces Foreclosure Prevention Plan
Speaking in Mesa, AZ, just outside Phoenix, President Obama announced a plan to stem the tide of foreclosures.
With homeowners keeping their property, they will continue paying property tax, which will be a key element to the recovery: foreclosures aren't just bad for families, but for the nation as a whole, since the knock-on effect is so deep.
This plan will not be any help to those who have already lost their homes, but will throw a lifeline to those on the cusp of foreclosure.
The plan will enable as many as 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance their mortgages through those institutions.
The rescue plan is engineered to help up to five million Americans refinance their mortgages on properties that are "under water" — or worth less than the amount owed on the mortgage.
The plan will also contain incentive payments for lenders to give help to up to four million borrowers at risk of foreclosure. The aid is meant to cut homeowners' monthly mortgage payments back to no more than 31 per cent of their income.
The program, to be announced later today by President Barack Obama, will use $75 billion to bring down interest rates and encourage loan modifications, the Treasury Department said in a statement.
The location of the announcement is quite fitting, as Phoenix (where I spent my formative years) has been hard-hit by economic downturn, and the decay of the city has been accelerated by a high foreclosure rate.
More than half of metro Phoenix's home sales are foreclosure homes being resold for bargain prices.
A Democrat familiar with the proposal says it will include:
The price tag is $50 billion -- from the TARP funds -- plus more on top of that from other programs.
Government subsidies for lenders to modify loans to homeowners who are struggling to make payments. The government would subsidize the difference.
A program through Fannie Mae and Freddie Mac for homeowners to refinance their mortgages if they owe more than their homes are worth.
An effort to make loans more affordable through various means -- extending loans, lowering interest rates, and other ways.
Ahead of the announcement, stocks bounced a bit:
S&P 500 futures rose 7.60 points, and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Of course, this bill must first journey through Congress, as did the Economic Stimulus Package.
House Republican Whip Eric Cantor, R-Virginia, along with Minority Leader John Boehner, R-Ohio, sent a letter Wednesday to the president "seeking clarification on six important questions about [Obama's] broad housing proposal," according to a press release from Cantor's office.