Obama unveils $75B mortgage relief plan today

February 18, 2009

(ChattahBox) – President Barack Obama’s will spend $75 billion in an effort to prevent up to 9 million Americans from losing their homes, as the next step in his multi-pronged efforts to lift the United States out of recession.

The plan to tackle the foreclosure crisis, which Obama is releasing later today (Feb. 18th), is more ambitious and expensive than initially expected. It targets borrowers who owe more on their mortgages than their homes are currently worth, and borrowers who are on the verge of foreclosure.
The initiative is designed to help up to 5 million borrowers refinance, and provides incentive payments to mortgage lenders in an effort to help up to 4 million borrowers on the verge of foreclosure.

The depth of the crisis was underlined by data released on Wednesday showing that new U.S. housing starts and building permits dropped to record lows in January, as builders shelved construction plans due to a glut of unsold houses and a slump in demand.

Headlining the plan was a $75 billion Homeowner Stability Initiative, under which would provide incentives to lenders to cut monthly mortgage payments to sustainable levels. It defines this at no more than 31 percent of a homeowners income.

Another key component: a new program aimed at helping homeowners said to be “under water” — with dwellings whose value have sunk below the principal still owing on their mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 to 5 million families do just that.

Of the nearly 52 million U.S. homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody’s Economy.com

In tandem, the Treasury Department said it would double the size of its lifeline to Fannie Mae and Freddie Mac, the mortgage giants effectively taken over by the government last year. The government, which seized the mortgage finance companies last fall, said Wednesday it would absorb up to $200 billion in losses at each company.

The biggest players in the mortgage industry already had halted foreclosures pending Obama’s announcement.

The president’s announcement comes a day after he signed into law a $787 billion economic stimulus plan he hopes will spark an economic turnaround and create or save 3.5 million jobs.


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