As part of his economic recovery plan, President Barack Obama has unveiled a $75 billion foreclosure prevention plan aimed at keeping homeowners in their houses.
According to the White House blog, the Homeowner Affordability and Stability Plan has four key elements:
- Helping between four and five million homeowners with Fannie Mae or Freddie Mac mortgages refinance their debt;
- Providing lender incentives for modification of subprime loans risking default or foreclosure;
- Working to keep rates low for those seeking new mortgages;
- Other reforms aimed at keeping people in their homes.
Obama asserts that the plan could provide direct help to as many as nine million homeowners — but has far wider-reaching effects. “In the end, 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,” he said while announcing the plan in Phoenix.
He also emphasized that the prevention program is meant for homeowners who have shown commitment to paying down their debt. “The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly,” he told the Phoenix audience.
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The plan’s executive summary states a need for action based on the “devastating consequences…throughout the country” due to the nation’s troubled economy and housing market. It purports to strike a blow not only for affected homeowners but for the nation as a whole: “[T]he plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs.”
In Senate testimony after the announcement of the plan, Housing Secretary Shaun Donovan said that loan modifications would be an option for those whose mortgage debt is as much as 50 percent of their home’s current value. Donovan also said borrowers who have not yet defaulted, but have large debt loads from mortgages, credit cards, and car loans would be able to seek modifications.
Donovan said the Obama administration hopes for a large number of modifications to happen rapidly in order to lessen foreclosure numbers throughout the country.
The plan also budgets for $100 billion each for Fannie Mae and Freddie Mac, the country’s two largest mortgage lenders. Fannie Mae claims nearly $59 billion in losses since the beginning of the foreclosure crisis, and it is estimated that both lenders combined either own or back half of the mortgage loans nationwide.
In September, Fannie Mae and Freddie Mac were placed into conservatorship of the Federal Housing Finance Agency. FHFA director James B. Lockhart III says there are no plans to liquidate either lender.
Meanwhile, bad news continues on the housing front. In mid-February, the Commerce Department reported that sales of new homes fell 10.2 percent in January. At a seasonally adjusted annual rate of 309,000, those figures are the worst since 1963 and worse than expected. Median sales prices also fell in January, tumbling to $201,000, or a 9.9 percent drop from the previous month.