Richard Wolf and Stephanie Armour
USA Today
Fans reach out to President Obama after he unveiled his administration’s plan to help homeowners facing foreclosure while at Dobson High School in Mesa, Ariz., on Wednesday. By Larry Downing, Reuters
MESA, Ariz.— President Obama added the nation’s housing foreclosure crisis to his economic recovery agenda Wednesday with a $75 billion plan to help up to 9 million troubled homeowners stay in their homes.
The program is tailored so up to 4 million homeowners can reduce their mortgage payment so it is no more than 31% of their income. As many as 5 million more facing foreclosure or who owe more on their mortgages than their homes are worth would have a chance to refinance, as long as their mortgage is not excessively higher than their home is worth.
The plan “will give millions of families resigned to financial ruin a chance to rebuild,” Obama said before a packed high school auditorium in a state that’s been racked by the housing crisis. But the president said the plan won’t help every distressed homeowner. “All of us must learn to live within our means again.”
Fannie Mae and Freddie Mac, the two mortgage giants, could receive an additional $100 billion each from the government. As a result, the plan’s cost could be as much as $275 billion.
Homeowners whose total monthly debt payment is more than 55% of their income would have to go to credit counseling to get help from the plan.
Housing Secretary Shaun Donovan said help would not be available to homeowners whose mortgages are more than 5% above what their homes are worth because lenders would probably not approve new financing for people so far underwater.
“You have to have a reasonable chance of success,” he said.
Obama said it “focuses on rescuing families who have played by the rules and acted responsibly,” rather than speculators, home flippers and people who bought far more than they could afford.
That appealed to Patrice Caldwell, 55, a widow in the audience whose Phoenix home is worth $80,000 less than her mortgage.
“I really like the part that it’s for the responsible people, who through no fault of their own are affected,” she said.
The plan earmarks $75 billion, mostly from financial rescue funds already approved by Congress. Lenders would be responsible for lowering interest rates so a borrower’s monthly payment is no more than 38% of their income. The government would then help pay for the costs of reducing a borrower’s loan payment so it becomes 31% of income.
Republicans blasted the plan for leaving taxpayers on the hook.
“The president’s plan actually will use taxpayer money to pay people to do what they are already supposed to do — pay their mortgage,” said Sen. Richard Shelby of Alabama, top Republican on the Senate housing committee. “It also uses taxpayer money to pay banks to do what they should already be doing — modifying mortgages.”
Some elements will require congressional approval — notably an overhaul of bankruptcy rules to allow judges to reduce mortgages on primary residences to their fair market value.