Obama Commits $75 Billion to Fight Foreclosure Crisis

U.S. President Barack Obama unveiled his plan Wednesday to heal prop up the drooping national housing market, pledging $75 billion of government funds to fight high foreclosure rates.

In a speech at high school just outside of Phoenix, Arizona, the President laid out a four-point plan for restoring the health of the mortgage sector. He said that his administration will:

1.Allow Fannie Mae and Freddie Mac to Modify Mortgages
Currently, the government-sponsored mortgage companies, that own or guarantee a large portion of the nation’s home loans, are restricted from modifying “upside-down” mortgages and those that are more than 80 percent of a home’s value. Obama’s plan will remove this limitation, allowing millions of trouble homeowners to refinance into more affordable loans. The “estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures,” the President explained.

2.Create Incentives for Lender to Modify At-risk Subprime Loans
Subprime, or bad credit mortgages account for about half of all foreclosures, even though they make up only a small portion all mortgages in the country. The Obama plan essentially promises to subsidize lender’s efforts to help these subprime lenders get into loans with lower interest rates. Lenders will be required to reduce a borrower’s payments to under 31 percent of his income.

3.Buy Up More Toxic Freddie and Fannie Mortgages and Keep Rates Low
The Treasury Department and Federal Reserve will continue to purchase failing loans guaranteed by Freddie and Fannie in order to get them off their books and give them liquidity to buy new loans. This is intended to help keep interest rates low as well.

4.Modify Bankruptcy Laws and Support Community Foreclosure Prevention Efforts
The President’s plan call for a reform of the current bankruptcy rules in order to “allow judges to reduce home mortgages on primary residences to their fair market value.” The government will also pump funds into community organizations aimed at stemming the tide of local defaults and foreclosures.

“Taken together, the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American Dream,” the President remarked.

Yet, he was quick to caution Americans that his plan would not be an instant fix. “We must also acknowledge the limits of this plan. Our housing crisis was born of eroding home values, but also of the erosion of our common values. It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true; by lenders who knowingly took advantage of homebuyers; by homebuyers who knowingly borrowed too much from lenders; by speculators who gambled on rising prices; and by leaders in our nation’s capital who failed to act amidst a deepening crisis.”

“So solving this crisis will require more than resources,” Obama concluded. “It will require all of us to take responsibility.”