President Barack Obama unveiled a $75 billion foreclosure prevention program yesterday aimed at arresting one of the root causes of the nation's economic spiral by helping as many as 9 million homeowners obtain more affordable mortgage terms.
The White House also said it will buy as much as $200 billion each of Fannie Mae and Freddie Mac preferred stock, doubling the allocation, to help the two mortgage finance companies support the housing market.
The program, part of the Obama administration's multi-trillion dollar effort to jolt the nation out of its deepening recession, went beyond what some analysts had anticipated and was welcomed by many of the nation's top lending institutions.
But it also drew criticism from some housing experts and consumer advocates, who argued it did not go far enough in addressing some critical aspects of the foreclosure crisis.
"We are disappointed they didn't take a more aggressive approach," said John Taylor, chief executive of the Washington-based National Community Reinvestment Coalition.
The Obama proposal "sounds like a plan that has Fannie and Freddie preventing more foreclosures" and gives mortgage servicers incentives to modify loans, "but we had hoped to see more support for homeowners," Taylor added.
Many key details of the plan will not be released until early next month.
Obama, who outlined the plan yesterday in Mesa, Ariz., is confronting a deepening recession as home prices fall and foreclosure rates rise. Almost 6 million U.S. households are facing foreclosure, according to a fact sheet distributed by the White House.
Obama said his housing initiative helps homeowners who "played by the rules and acted responsibility." A typical family will save an average of $2,300 a year under the Obama program, Housing and Urban Development Secretary Shaun Donovan said yesterday.
But the plan should offer more assistance to servicers aiming to keep borrowers in their homes, said Peter Monroe, a former president of the Resolution Trust Corp. who is now chief executive of National Real Estate Ventures, in Safe Harbor, Fla.
House Speaker Nancy Pelosi (D-Calif.) pledged to bolster Obama's efforts by pushing foreclosure-prevention legislation, including a bill to let bankruptcy judges lower mortgage payments. Sen. Charles Schumer (D-N.Y.) said the proposal should succeed where other efforts have failed.
"The fact that this plan focuses on all the players involved, including servicers and investors, and uses sticks as well as carrots, makes it far more likely to succeed than past proposals," he said in a statement.
But the outlines of Obama's plan appeared to be an acknowledgment that he will need cooperation from the loan servicers who collect mortgage payments if he intends to reach his goal of preventing up to 9 million foreclosures.
"The truth is that at the end of the day, loan modification remains voluntary, so the servicers need to see it as sufficient incentive to participate," said Andrew Jakabovics of the Center for American Progress, who has worked with Obama's team on housing issues.
Companies would get $1,000 for agreeing to give a strapped homeowner a lower monthly payment instead of foreclosing - more if the borrower hasn't yet fallen behind. They can get up to another $3,000 over the next three years. And they get government insurance to cover part of the money they might lose if the homeowner ultimately defaults on the loan.
of the plan
The Obama administration unveiled a $275-billion housing plan designed to stem mounting foreclosures. The three major facets of the Homeowner Affordability and Stability Plan are:
Help homeowners hurt by falling home prices
GOAL Enable as many as 5 million homeowners to lower their monthly payments through refinancing. The "responsible" borrowers targeted have put money down and made on-time mortgage payments, but their home values have dropped low enough to make them unable to access lower interest rates.
at risk of foreclosure
GOAL Use $75 billion to reduce monthly mortgage payments to "reasonable" levels for those who are at risk of foreclosure yet cannot sell their homes because prices have dropped so low. The government and lenders would share the burden of lowering payments to no more than 31 percent of a borrower's monthly income.
Expand the role
of Fannie Mae
and Freddie Mac
GOAL Ensure the strength and security of the mortgage market and help maintain mortgage affordability. Treasury would provide as much as $200 billion of additional preferred stock in the two mortgage companies, twice as much as previously promised, and increase the size of the companies' retained mortgage portfolios by $50 billion to $900 billion.
Initial LI foreclosure fillings
These are foreclosure-related fillings - not just foreclosures. In certain cases it may be that the bank has begun foreclosure proceedings - list pendens - against homeowners.
SOURCE: The Real Estate Report, INC.