ARI SHAPIRO, host:
This is MORNING EDITION from NPR News. I'm Ari Shapiro.
STEVE INSKEEP, host:
And I'm Steve Inskeep.
We're going to try to understand, this morning, what President Obama will do for homeowners and what he won't. Even with all the federal money that's been borrowed and spent, for all the financial firms liquidated or saved, relatively little assistance has gone to people struggling to pay the mortgage.
Yesterday, the president became the latest official to say he would change that.
President BARACK OBAMA: 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 - a crisis which is unraveling home ownership, the middle class and the American dream itself.
INSKEEP: So that's the argument for acting. David Wessel of the Wall Street Journal is here to help us understand how the president is acting. David, welcome back to the program.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning, Steve.
INSKEEP: Let me give you a couple of hypothetical situations that are not hypothetical at all for millions of homeowners. Let's say that I'm falling behind on my mortgage, my interest rate went up or I lost my job, whatever - I'm in trouble with the mortgage. What does the president's plan do for me?
Mr. WESSEL: Well, for three to four million homeowners, many of whom have subprime mortgages, who may be behind in their payments and who cannot afford the payments that the banks are charging them, President Obama is going to allocate $75 billion to get their payments reduced and maybe even get the principal amount of the loan reduced.
INSKEEP: So, there is some help there. You could end up paying less, depending basically on your own income and whether you can afford a reasonable amount of that for the mortgage.
Mr. WESSEL: Your own income, the value of your house versus the mortgage, your willingness of your lender to participate. There are lots of bells and whistles. The details are quite complicated and they're not all out yet, but basically that's the idea.
INSKEEP: Well, let me talk about another hypothetical situation, which, again, is real for lots of people, millions of people. Let's say I'm making the payments but I'm underwater. The house is worth less than my mortgage right now. Does this plan do anything for me?
Mr. WESSEL: That's the big change compared to what we'd seen before. Roughly one-in-ten of every American homeowners has a mortgage that's bigger than the value of his or her house. And what President Obama says is that he's going to ask Fannie Mae and Freddie Mac, the two government-controlled mortgage giants, to refinance those mortgages. And he says it could be four to five million homeowners who qualify for that.
INSKEEP: So, you could refinance even if you don't have the underlying home value anymore to support a new mortgage?
Mr. WESSEL: It will be for people whose equity in their house is somewhere between 80 percent and 105 percent of the value of the house.
INSKEEP: So, you would normally expect to have a big down payment or some kind of equity. They'll just kind of overlook that for the moment.
Mr. WESSEL: Correct.
INSKEEP: Well, now, let me ask something, though, David Wessel. You mentioned bells and whistles, and one of them seems to be the bell and whistle that has prevented many of these plans from working so far. Does the president have the power to force lenders to change the terms or modify mortgages?
Mr. WESSEL: In most cases, the president is trying to give carrots to the lenders so they will refinance voluntarily. In some cases, the lender will benefit because the government will help the people pay the loan, and that's good for the lender - they're more likely to get the money back. In other cases, there are actual cash payments to the lenders or the servicers - $1,000 here; $1,500 there - to encourage them to do it.
There are a couple of sticks. One is that the president wants to change the law so that if you own a house and go into bankruptcy, you can reduce your mortgage payments. That's not now currently possible, and for many Americans he wants to change the law to make that possible. That, of course, makes the lender more willing to cut a deal.
And also for banks that take more money in the future from the government through the so-called TARP program, there will be more restrictions that force them to consider refinancing or modifications.
INSKEEP: Well now, David, given that previous plans, here, have been tried and have not worked, how are the markets responding to this one?
Mr. WESSEL: Well, a lot better than they reacted to the earlier announcement by Treasury Secretary Tim Geithner, about his bank rescue plan. This one had more detail than that and was more aggressive, exceeded the expectations. Not to say there's not a lot of criticism. Some people say it just isn't enough to solve the housing problem because it's so enormous. And of course there are those people who will be left out of the plan, people who, for instance, have larger-than-normal mortgages or more-expensive-than-normal houses, who won't benefit. And then there's the very tough question of: will the plan encourage some people who don't deserve help, who are paying their mortgages and can't afford it, to somehow do things that'll allow them to qualify for government aid?
In the end, it's going to depend on the details and how well it's actually implemented. If it works it'll be hailed as a big success, but there's a lot of wait and see out there.
INSKEEP: David Wessel of the Wall Street Journal. Thanks very much.
Mr. WESSEL: You're welcome, Steve.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.