MESA, Ariz. — President Barack Obama threw a $75 billion lifeline to millions of Americans on the brink of foreclosure, declaring Wednesday an urgent need for drastic action — not only to save their homes but to keep the housing crisis “from wreaking even greater havoc” on the broader national economy.
The lending plan, a full $25 billion bigger than the administration had been suggesting, aims to prevent as many as 9 million home owners from being evicted and to stabilize housing markets that are at the center of the ever-worsening U.S. recession.
Government support pledged to mortgage giants Fannie Mae and Freddie Mac is being doubled as well, to $400 billion, as part of an effort to encourage them to refinance loans that are “under water” — those in which homes’ market values have sunk below the amount the owners still owe.
“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,” Obama said.
The president, focusing closely on the economy in his first month in office, rolled out the housing program one day after he was in Denver to sign his $787 billion emergency stimulus plan. His administration also is going over fresh requests for billions more in bailout cash from ailing automakers.
Wall Street has shown little confidence in the new steps, declining sharply Tuesday before leveling off after Wednesday’s announcement. The Dow Jones industrials rose three points for the day.
Success of the foreclosure rescue is far from certain.
The administration is loosening refinancing restrictions for many borrowers and providing incentives for lenders in hopes that the two sides will work together to modify loans. But no one is required to participate. The biggest players in the mortgage industry temporarily had halted foreclosures in advance of Obama’s plan.
Complicating matters, investors in complex mortgage-linked securities, who make money based on interest payments, could balk, especially those who hold second mortgages or home-equity loans. Their approval would be needed to prevent many foreclosures.
“The obstacles have not gone away,” said Bert Ely, a banking industry consultant in Alexandria, Va.
Another cautionary note came from John Courson, chief executive of the Mortgage Bankers Association.
“It seems to offer little help to borrowers whose loan exceeds their property value by more than 5 percent,” he said, noting that the plan’s success would be limited in some of the hardest-hit areas in California, Florida, Nevada and Arizona and parts of the East Coast.
Indeed, Obama himself said, “This plan will not save every home.” The goal is to lower many endangered home owners’ payments to no more than 31 percent of their income.
Obama said he backs legislation in Congress to allow bankruptcy judges to modify the terms of primary home loans — an idea ardently opposed by the lending industry.
“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,” Obama said. Yet, he also added: “We must also acknowledge the limits of this plan.” He called on lenders, borrowers and the government “to step back and take responsibility” and said: “All of us must learn to live within our means again.”
The president unveiled his housing plan at a Phoenix-area high school in a state with one of the country’s biggest foreclosure rates.
Nationally, Moody’s says that of the nearly 52 million U.S. homeowners with mortgages, about 13.8 million, or nearly 27 percent, owe more than their homes are worth after many months of declining prices.
How soon will the new plan show results? “You’ll start to see the effects quite quickly,” Treasury Secretary Timothy Geithner told reporters in Phoenix, noting that rules governing the changes will be published March 4.
The $75 billion Homeowner Stability Initiative would provide incentives to mortgage lenders to cut monthly payments and help up to 4 million borrowers on the verge of foreclosure, using money from the $700 billion financial industry bailout passed by Congress last fall.
Another part would specifically help people with dwellings whose market value has sunk below the principal still owed on the mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 million to 5 million families do just that — if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.
