ALEX COHEN, host:
From the studios of NPR West, this is Day to Day. I'm Alex Cohen. New numbers released today show construction of new homes and plans for future projects both plunged to record lows last month. These figures come on the same day President Obama reveals his mortgage relief plan from Arizona. That's a state troubled with record foreclosures. Here to discuss this plan is NPR's Yuki Noguchi. And Yuki, this plan could commit up to $275 billion in funds to help home owners. What will that money be used for?
YUKI NOGUCHI: Well, there are millions of people in or closed to foreclosure, and the hope of this plan, like the several others that came before it, is to try to mitigate that, to try to basically rework the terms of the loans so that people won't lose their homes.
COHEN: And how might that be done?
NOGUCHI: Well, with a lot of money. They aren't reducing the principal on the loan, so the only way to get payments down is by tinkering with the interest rates, and one way to do that is using Fannie Mae and Freddie Mac to refinance homes to lower rates so that people can afford them by changing restrictions on current rules administration hopes to put four to five million home owners into lower payments.
Now, this is going to strain the already troubled Fannie and Freddie, so Treasury's also doubling their financial backing of both of those companies to $200 billion each.
The second part of this plan is a little more complex. It involves private lenders and the government sharing cost to reduce interest rates for home owners. So how this works is the lender would reduce the monthly payments to an amount that's within38 percent of the home owner's monthly income, then Treasury will step in and match dollar for dollar with the lender to bring that down further to 31 percent of their pre-tax income.
But again, the plan won't reduce the principal amount owed. And there are some people who just believe that you can't find a permanent fix without writing down the principal.
COHEN: Yuki, you talk about these lowered payments. What if investors, who basically own these loans, decide they don't like the idea of lowered payments?
NOGUCHI: Well, the biggest stick Congress is talking about is changing bankruptcy law to allow bankruptcy judges to just rewrite the terms of mortgages as they see fit. And that's just the end of the story, and that deal scares investors. But what the administration is doing today is creating new incentives for mortgages servicing companies. These are the companies that do all the administrative work on the loans. And by creating these financial incentives, the administration hopes to basically promote mortgage workout. And this hasn't been a feature of other mortgage modifications programs.
COHEN: Who will or will not qualify for these deals?
NOGUCHI: Well, people who can afford their mortgages won't get a deal. Second homes and investment homes won't qualify, and people who lost their jobs and who just can't afford their payments, you know, even if they're lowered will probably end up losing their home as well. But this is one of the moral hazards of these programs, you know. Someone might get a work out where their neighbor doesn't, and that's not fair, but the government's position is that stemming the tide of foreclosure and putting a floor on dropping housing price is just good for everybody.
COHEN: NPR's Yuki Noguchi. Thank you.
NOGUCHI: Thank you.
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