Obama plan seeks to save millions from foreclosure

MESA, Ariz. -- The Obama administration on Wednesday announced a $75 billion plan aimed at shoring up the flagging housing market by helping up to 9 million homeowners rework their mortgages to avoid foreclosure.

"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 continue to deepen – a crisis which is unraveling homeownership, the middle class, and the American Dream itself," President Obama said at his formal unveiling of the plan in Mesa.

The plan includes refinancing mortgages of up to 5 million homeowners to make their payments more affordable. It also involves an initiative to reach up to another 4 million homeowners by lowering the risk of imminent default with a "homeowner stability initiative" to reduce their monthly payments.

"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments," Obama said.

The plan involves:

•Refinancing help. Homeowners who took out loans owned or guaranteed by Fannie Mae or Freddie Mac will be able to refinance through those institituions — a plan designed to help millions of homeowners who can't refinance because they owe more on their homes than they are worth.

Currently, homeowners who owe more than 80% of the value of their homes have a tough time refinancing; nearly one in seven homeowners is "underwater" on their loan, about 12 million homeowners, nearly double the 6.6 million who were underwater at the end of 2007, according to Moody's Economy.com.

•Housing stability. The plan earmarks $75 billion to help homeowners stay in their properties. To reduce monthly payments, lenders would be responsible for lowering interest rates so the borrower's monthly payment is no more than 38% of income. After that, the government would help lower payments by matching further interest-rate reduction payments to bring the ratio down to 31%.