Obama Releases $75 billion Housing Plan to Stop Foreclosures

$75 billion for foreclosures

Feb. 18 (Bloomberg) — U.S. President Barack Obama released a $75 billion housing program that will cut mortgage payments for millions of struggling homeowners and expand the role of Fannie Mae and Freddie Mac in curbing record foreclosures.

The plan will create a new program to help as many as 5 million homeowners refinance conforming loans owned or guaranteed by Fannie Mae and Freddie Mac, according to a fact sheet released by the White House. Treasury will buy up to $200 billion of preferred stock in each of the housing companies, twice as much as previously pledged, the announcement said.

“It will give millions of families resigned to financial ruin a chance to rebuild,” Obama said in remarks prepared for delivery at 10:15 a.m. in Phoenix. “By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The program signals the Obama administration plans to take a more aggressive stance to halt foreclosures than the Bush administration, which supported voluntary industry efforts. Record foreclosures in the past year are swelling the glut of properties on the market, forcing down home values and undermining homebuilders’ efforts to revive demand and lighten inventory by cutting prices.

The Obama plan will have the government match lender reductions in interest payments that decrease borrowers’ payments to 31 percent of their monthly income. The Treasury will share in the cost when lenders reduce monthly payments by forgiving a portion of the borrower’s mortgage balance.

Incentives

Companies that service mortgages will get $1,000 for each loan that’s modified, and as much as $1,000 for three years when the borrower stays current, the government said. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan.

Treasury will increase the size of Fannie’s and Freddie’s retained mortgage portfolios, to $900 billion, allowed under the preferred stock agreement included in the September federal takeover of the two mortgage-finance companies.

An administration official, speaking to reporters in Washington, said the Treasury’s pledge of support for Fannie and Freddie is intended to build confidence that the government stands fully behind the two mortgage-finance companies. The official said the two aren’t yet close to reaching the initial limit of $100 billion in government support.

Banks including Citigroup Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Bank of America Corp. have agreed, at the request of lawmakers, to suspend foreclosure proceedings until the Obama plan is adopted. The Office of Thrift Supervision last week urged the lenders it oversees to suspend foreclosures.