PHOENIX — President Barack Obama marshaled $75 billion on Wednesday to tackle the foreclosure crisis in an effort to prevent up to 9 million Americans from losing their homes.
In tandem, the Treasury Department said it would double the size of its lifeline to Fannie Mae and Freddie Mac. The government, which seized the mortgage finance companies last fall, said it would absorb up to $200 billion in losses at each company.
The plan is more ambitious than initially expected — and more expensive. It aims to aid borrowers who owe more on their mortgages than their homes are currently worth, and borrowers who are on the verge of foreclosure.
The initiative is designed to help up to 5 million borrowers refinance — if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac. It also provides incentive payments to mortgage lenders in an effort to convince them to help up to 4 million borrowers on the verge of foreclosure.
“All of us are paying a price for this home mortgage crisis,” Obama said in remarks prepared for delivery at a ceremony announcing the program at a Phoenix area high school.
The housing industry has been devastated by the nation’s recession. Construction of new homes and applications for future projects both plunged to record lows in January as all parts of the country showed big declines in building activity. Analysts hope that a boost from government programs, including the efforts to stem foreclosures, will help stop the slide.
Headlining Obama’s plan was a $75 billion Homeowner Stability Initiative, which would provide a set of incentives to lenders to cut monthly mortgage payments to sustainable levels. It defines this at no more than 31 percent of a homeowners income. Funding would come from the $700 billion financial industry bailout passed by Congress last fall.
Another key component: a new program aimed at helping homeowners said to be “under water” — with dwellings whose value have sunk below the principal still owing on their mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 to 5 million families do just that.
Obama said this change would come at “roughly zero” cost to taxpayers.
Of the nearly 52 million U.S. homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody’s Economy.com
Announcing his plan in a state hard hit by the housing crunch, Obama said that stemming the tide of foreclosures is key to turning around the recession-bound economy.
“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 deepen,” he said, according to the advance text.