Feb. 18, 2009— -- President Obama today pledged to help up to 9 million homeowners facing foreclosure or struggling to make their mortgage payments.
The cost was not initially clear, but just one aspect of this plan was given a $75 billion price tag. The overall program is likely to well exceed that.
"By making these investments in foreclosure-prevention today, we will save ourselves the costs of foreclosure tomorrow -- costs borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole," Obama said at Dobson High School in Mesa, Ariz. "Given the magnitude of these costs, it is a price well worth paying."
Arizona was chosen as the site to unveil the plan because unemployment in the state was 6.9 percent in December 2008, and Arizona recorded 117,000 foreclosures in 2008, the third highest number in the U.S.
Obama said his plan also helps homeowners who don't fit into those two categories by stabilizing the home prices of entire neighborhoods, ensuring that their investments in their homes do not suffer.
"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 -- a crisis which is unraveling homeownership, the middle class and the American Dream itself," the president said.
Under current lending standards, only those who owe less than 80 percent of their home's value can easily refinance. The problem is that millions of Americans who might have originally put 20 percent of the home's value into a down payment have now seen their home values plunge, making it nearly impossible to take advantage of today's historically low interest rates.
Obama wants to allow 4 million to 5 million families who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
The plan could save homeowners hundreds of dollars a month. Obama's staff presented an example of a family with $200,000 outstanding on a 6.5 percent mortgage. If they refinanced at 5.16 percent, they could save almost $200 each month.
Fannie Mae and Freddie Mac are privately held companies under government control. To implement this plan, the government will use $100 billion in Treasury funds to increase the size of their portfolios from $850 billion each to $900 billion so the companies can loan that money out and lower interest rates.
"While Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures," Obama said.
What was initially unclear is whether homeowners who now owe more money than their homes are worth would qualify for such refinancing. Also unclear was exactly who else would or would not qualify for new loans.
The Treasury Department plans to develop uniform guidelines for loan modifications, but did not release those specifics today. Those are expected two weeks from today.