President Barack Obama unveiled a $75 billion plan Wednesday to help up to 9 million homeowners avoid foreclosure. He made the announcement in suburban Phoenix, which has been badly affected by the real estate crisis.
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
And we begin this hour with the collapse of the housing sector. It kicked off the overall economic crisis. We hear about President Obama's sweeping plan to bring relief to homeowners and, in a few minutes, from a mortgage counselor who has already been working hard to do just that. The Obama plan calls for $75 billion to help restructure millions of at-risk home loans. The plan would also enable millions of homeowners, who are not in danger of default, to refinance into cheaper loans. The president says that should help as many as 9 million households as well as their surrounding communities and the broader economy.
NPR's Scott Horsley has more on this.
SCOTT HORSLEY: President Obama outlined his plan in the Phoenix suburb of Mesa, Arizona, a community that grew rapidly as the housing bubble inflated, then wound up with financial gum on its face once the bubble popped.
P: In Phoenix and its surrounding suburbs, the American dream is being tested by a home-mortgage crisis that not only threatens the stability of our economy, but also the stability of families and neighborhoods.
HORSLEY: The collapse of the housing market, along with the broader economy, has left 150,000 Arizonans at risk of foreclosure, along with millions more around the country. For people who can no longer afford their mortgage, Mr. Obama wants lenders to reduce the monthly payments to just 31 percent of a borrower's income. Banks getting bailout funds from the government are obligated to go along. Mr. Obama says other lenders could also find it's worth their while, thanks to new government incentives.
P: If lenders and home buyers work together, and the lender agrees to offer rates that the borrower can afford, then we'll make up part of the gap between what the old payments were and what the new payments will be.
HORSLEY: The $75 billion price tag of the program is even bigger than the administration originally promised. Sheila Bayer, who chairs the Federal Deposit Insurance Corporation, said it's good to see real resources committed to bringing reluctant lenders into the fold.
NORRIS: You know, it would be nice if it happened voluntarily. We tried voluntary; it didn't work, and we are woefully behind the curve.
HORSLEY: A second piece of the Obama plan is aimed at homeowners who can pay their mortgage, but who would still benefit from refinancing at today's lower interest rates. Many homeowners have been ineligible to refinance because falling home values have left them without the required 20 percent home equity. HUD Secretary Shaun Donovan says relaxing that requirement will allow millions more families to refinance, saving the typical household more than $2,000 a year.
NORRIS: Let me be clear, these families have played by the rules. They're families that only have been victims of their houses falling in value. And therefore, their mortgages are close to or higher than the value of their homes today.
HORSLEY: Playing by the rules is an important mantra for the administration, which is already drawing criticism from some congressional Republicans that its plan rewards irresponsibility. Mr. Obama took pains to say he's only trying to help well-intentioned homeowners, not speculators or those who knowingly bought more house than they could afford.
For people who are paying their own mortgage and wonder why they should help their neighbor pay his, Mr. Obama stressed that everyone would pay a higher price if the mortgage crisis deepens.
P: And we're not just helping homeowners at risk of falling over the edge, we're preventing their neighbors from being pulled over that edge, too, as defaults and foreclosures contribute to sinking home values and failing local businesses and lost jobs.
HORSLEY: The government says it should have a standard procedure for restructuring mortgages in place by early next month. Meanwhile, the Treasury Department is promising new support for mortgage giants Fannie Mae and Freddie Mac in an effort to prop up the housing market and keep mortgage rates at historically low levels for everyone.
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President Obama on Wednesday unveiled an aggressive plan that aims to help up to 9 million homeowners avoid foreclosure, a major cause of the nation's financial crisis.
The president announced details of the plan in a speech in suburban Phoenix, where massive foreclosures drove down the median price of an existing home to $136,000 last month — a 49 percent drop from 2006, according to The Arizona Republic.
The plan is designed to help homeowners whose mortgages exceed the value of their home and those who are on the verge of foreclosure. It includes $75 billion to cut the home payments of some homeowners and $200 billion from the Treasury Department to purchase preferred stock in Fannie Mae and Freddie Mac — double what was originally pledged.
"Through this plan, we will help between 7 and 9 million families restructure or refinance their mortgages so they can avoid foreclosure," Obama said in remarks to a crowd at a Mesa, Ariz., high school. "And we are not just helping homeowners at risk of falling over the edge; we are preventing their neighbors from being pulled over that edge too — as defaults and foreclosures contribute to sinking home values, failing local businesses, and lost jobs."
The announcement came shortly after the Commerce Department released even more bad news about the housing market. The government report showed that housing starts fell nearly 17 percent in January to a seasonally adjusted annual rate of 466,000 units, a record low. Applications for building permits, an indicator of future activity, also dropped.
The president's initiative calls for allowing 4 million to 5 million ineligible homeowners with mortgages through Fannie Mae or Freddie Mac to refinance their home loans at lower rates. To accomplish this, Obama said he would remove restrictions that prevent Fannie and Freddie from refinancing mortgages valued at more than 80 percent of a home's worth.
Housing Secretary Shaun Donovan stressed that homeowners don't need to be delinquent in payments to get help.
The plan also offers financial incentives for lenders to reduce the mortgage payments of as many as 4 million homeowners who are at risk of losing their homes. Under the $75 billion Homeowner Stability Initiative, lenders would cut mortgage payments to no more than 31 percent of the borrower's income.
"My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines — which will be in place two weeks from today," Obama said.
The plan is designed to aid homeowners and entire communities where double-digit foreclosure rates have led to declining properties and a shrinking tax base. Last year, there were nearly 3.2 million foreclosure filings — including default notices, auction sale notices and bank repossessions — on more than 2.3 million properties during 2008, an 81 percent increase in total properties from 2007, according to RealtyTrac, which tracks foreclosures.
The president stressed that the plan would not rescue speculators who made risky investments on homes to resell, dishonest lenders who distorted facts to get loans approved, or people who bought homes they knew they could not afford.
In addition, the Treasury Department announced it would provide up to $200 billion to Fannie Mae and Freddie Mac to stabilize the markets and hold down mortgage rates. In 2008, almost three-quarters of new home loans were financed or guaranteed by Fannie Mae and Freddie Mac.
"The increased funding will provide forward-looking confidence in the mortgage market and enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners," said a Treasury Department statement.
The president announced his housing initiative just one day after he signed a $787 billion economic stimulus plan that aims to create or save 3.5 million jobs. On Wednesday, he said part of the economic stimulus included $2 billion in competitive grants to communities looking for innovative ways to avoid foreclosures.