President Barack Obama's plan to tackle theforeclosure crisis will spend $75 billion in an effort to preventup to 9 million Americans from losing their homes.
In tandem, the Treasury Department said it would double the sizeof its lifeline to Fannie Mae and Freddie Mac. The government,which seized the mortgage finance companies last fall, saidWednesday it would absorb up to $200 billion in losses at eachcompany.
The plan, which Obama is releasing later Wednesday, is moreambitious than initially expected -- and more expensive. It aims toaid borrowers who owe more on their mortgages than their homes arecurrently worth, and borrowers who are on the verge of foreclosure.
The initiative is designed to help up to 5 million borrowersrefinance, and provides incentive payments to mortgage lenders inan effort to help up to 4 million borrowers on the verge offoreclosure.
"All of us are paying a price for this home mortgage crisis,"Obama says in a prepared text of remarks scheduled shortly after 12noon EST Wednesday at a Phoenix area high school.
Headlining the plan was a $75 billion Homeowner StabilityInitiative, under which would provide incentives to lenders to cutmonthly mortgage payments to sustainable levels. It defines this atno more than 31 percent of a homeowners income.
Another key component: a new program aimed at helping homeownerssaid to be "under water" -- with dwellings whose value have sunkbelow the principal still owing on their mortgages. Such mortgageshave traditionally been almost impossible to refinance. But the
White House said its program will help 4 to 5 million families dojust that.
Of the nearly 52 million U.S. homeowners with a mortgage, about13.8 million, or nearly 27 percent, owe more on their mortgage thantheir 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 turningaround the recession-bound economy.
"In the end, all of us are paying a price for this homemortgage crisis. And all of us will pay an even steeper price if weallow this crisis to deepen," he said, according to the advancetext.
The plan also seeks to bolster confidence in Fannie Mae andFreddie Mac, the mortgage giants effectively taken over by thegovernment last year. The White House said the Treasury willincrease its funding commitment to the two using money Congress setaside last year, and will continue purchasing mortgage-backedsecurities from them.
The Treasury said the increased support for Fannie Mae andFreddie Mac didn't reflect projected losses at the two companies,which were seized by government regulators last September. The twocompanies are currently projected to need a combined governmentsubsidy of about $66 billion, well short of the new promise of upto $400 billion.
But Treasury Secretary Timothy Geithner said in a statement thatthe support "will provide forward-looking confidence in themortgage market and enable Fannie Mae and Freddie Mac to carry outambitious efforts to ensure mortgage affordability for responsiblehomeowners."
The biggest players in the mortgage industry already had haltedforeclosures pending Obama's announcement.
The president's announcement was coming a day after he signedinto law a $787 billion economic stimulus plan he hopes will sparkan economic turnaround and create or save 3.5 million jobs.
In a ceremony at the Denver Museum of Nature and Science, hehailed the plan's spending on green technology, education andhealth care, as well as badly needed repair of roads and bridges,and said those, plus middle-class tax cuts, represent the"essential work of keeping the American dream alive in our time."
Obama cautioned that the initiative isn't "the end of oureconomic troubles. Nor does it constitute all of what we are goingto have to do to turn our economy around. But today does mark thebeginning of the end."
Republicans dismissed the stimulus plan as hugely expensive andunlikely to succeed. To House Minority Leader John Boehner, R- Ohio,it was "a missed opportunity, one for which our children andgrandchildren will pay a hefty price."
At the same time, the administration was grappling with thedarkening prospects for the U.S. auto industry.
Even as Detroit carmakers submitted restructuring plans toqualify for continued government loans, General Motors Corp. and
Chrysler LLC asked for another $14 billion in bailout cash.
White House press secretary Robert Gibbs said the car companies'plans were being reviewed, but added, "It is clear that goingforward, more will be required from everyone involved -- creditors,suppliers, dealers, labor and auto executives themselves -- toensure the viability of these companies."