Obama To Spend $50 Billion on Troubled Homeowners
More Bad News
President Obama will unveil another component of his economic recovery plan in Mesa, Ariz., on Wednesday, targeting some $50 billion from the federal bank bailout program for subsidies to help troubled homeowners avoid defaulting on their mortgages.
Unlike the $787 billion stimulus package (HR 1) Obama signed on Tuesday in Denver, the housing initiative does not require Congress' blessing, because the administration already has the authority to tap into the remaining $350 billion in the Treasury Department's bank bailout fund (PL 110-343).
However it's expected to spur legislative efforts to help borrowers, including a proposal to modify the federal bankruptcy code so judges could alter terms for loans on primary residences, something they are currently barred from doing.
While the financial crisis has spread far beyond the housing market, officials familiar with the administration's thinking say that reducing future foreclosures will eliminate some of the risk that has frozen credit markets, by reducing problem loans from banks' balance sheets and allowing investors to revalue the institutions.
"The benefit is you eliminate some of the riskiest remaining mortgages and the market begins to reassess what's left," said Andrew Jacabovics, associate director of the economic mobility program at the Center for American Progress, a left-leaning think tank. "It's another way of bringing liquidity back -- by making banks' balance sheets healthier."
More than 2.3 million loans went into foreclosure last year, an 81 percent increase over 2007. And more than half of the loans that were modified in the first quarter of 2008 were 30 days or more delinquent six months later.
Democratic sources say providing subsidies to lower mortgage rates or cutting the principal owed by homeowners will be less expensive than waiting for the government to have to step in and pay guaranteed loans that go into default. Paying on the loss now also reduces the societal cost of the foreclosures.
"Ten thousand people face foreclosure every day in this country," White House press secretary Robert Gibbs said Tuesday. "It's a problem that not only affects the individual homeowner and their family, but oftentimes has a direct impact to home values in the neighborhood that that house or homes are on. This is a tremendously important part of what the president believes has to be done next in order to move our economy forward."
Officials wouldn't discuss details of the plan before Obama announces them. But one approach under consideration would adapt a mortgage modification program that Fannie Mae and Freddie Mac unveiled in November that seeks to change loan terms so borrowers don't pay more than 38 percent of their monthly pre-tax salaries on their mortgages. Obama's plan might lower that plan to 31 percent, according to Democratic sources. To accomplish this, the government can extend the lifetime of loans, reduce the interest rate or postpone repayment on some of the principal. The cost would be split between the government and mortgage servicers.
Borrowers facing the prospect of foreclosure would have to take an eligibility test and could qualify before their loans actually go into default.
A number of large banks including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. have agreed to suspend foreclosures through March while the administration works out the details of the plan. The Office of Thrift Supervision has requested federally and state-chartered entities to likewise halt foreclosure proceedings on owner-occupied residences.
As a presidential candidate, Obama called for the creation of a $10 billion fund to help homeowners avoid foreclosures and for changes in bankruptcy laws that would allow judges to modify mortgage terms. He opposed across-the-board freezes on foreclosures, saying such moves could prompt lenders to raise interest rates on new homeowners to make up for losses.
By choosing Mesa to unveil the plan, Obama is journeying to one of the metropolitan areas hardest hit by the subprime mortgage crisis. The median price of a home stood at $140,000 in January -- a 35 percent decline from year-earlier figures, according to an Arizona State University study.
Obama used campaign-style appearances in economically devastated Elkhart, Ind., Ft. Myers, Fla., and Peoria, Ill., last week to underscore the urgency of passing the stimulus package.
The travel is part of a strategy to distance Obama from partisan battles inside the Beltway and portray himself as an outsider, even though he's now on the inside. Polls showed Obama's job-approval ratings during the stimulus debate hovered in the mid-60 percent range, even though only a narrow majority of Americans supported the stimulus plan.
http://news.yahoo.com/s/cq/20090218/...olitics3055002
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So that $790 billion you just spent didn't really give any direct aid to ailing homeowners? Is ANY of that going to do anything to directly help us?
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Originally Posted by s.rwitt
because I'm thinking Rem. 570.
