U.S. President Barack Obama announced a US$75-billion plan Wednesday to help Americans facing imminent foreclosure or those who need to refinance their mortgage.
Obama's Homeowner Stability Initiative, which he outlined Wednesday afternoon at a Phoenix-area high school, will provide targeted help for as many as nine million Americans.
It will include aid for up to five million borrowers who are carrying mortgages worth more than the actual value of their home.
For another four million Americans on the brink of foreclosure, the plan will offer incentive payments to mortgage lenders willing to cut monthly payments to manageable levels.
The plan defines manageable levels as no more than 31 per cent of a homeowner's income.
"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 deepen," Obama said.
The four tenets of Obama's housing plan are:
- Lifting restrictions that currently prevent mortgage finance companies Fannie Mae and Freddie Mac from refinancing mortgages worth more than 80 per cent of a home's value.
- Establishing new guidelines for mortgage providers who agree to restructure payment plans to avoid foreclosure. If lenders lower payments, the federal government will make up part of the difference between the old and new payments.
- Using funds already approved by Congress, the U.S. Treasury Department and the Federal Reserve will continue to purchase mortgage-backed securities from Fannie Mae and Freddie Mac, which will ensure stability in the home marketplace and keep rates low on new mortgages.
- Pursuing a wide range of reforms, particularly to bankruptcy rules, so mortgages can be adjusted to a home's fair market value.
"Taken together the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American dream," Obama said to a cheering crowd.
Obama also warned that his plan would not help those who simply bought homes to flip, dishonest lenders who took advantage of buyers, or homeowners who purchased homes they knew they could not afford.
"This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild," Obama said. "It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate it will help to shore up housing prices for everybody."
During his speech, Obama outlined the magnitude of the home foreclosure crisis in the U.S.
About six million homes are in foreclosure, or at risk of foreclosure, while millions more are depreciating in value.
According to government research, foreclosures reduce the value of neighbouring homes by about nine per cent, Obama said. He added that home prices across the U.S. have dropped an average of 25 per cent since 2006.
New data released Wednesday also shows that U.S. housing starts and building permits fell to record lows in January.
Housing starts dropped 16.8 per cent to an annual rate of 466,000 units -- the lowest since records first started to be kept back in 1959.
New building permits fell 4.8 per cent to a 521,000 unit pace, also an all-time low, according to Reuters.
BNN's Michael Kane said the numbers show "nobody has confidence in the housing market returning to health anytime soon."
Sal Guatieri, an economist at BMO Capital Markets in Toronto, said the reports show that the recession is deepening and the risk of deflation is growing.
"We continue to see this adverse feedback between the housing market and the weakening economy," he said, according to Reuters.
On Tuesday, Obama signed a huge $787-billion stimulus plan filled with spending programs and tax cuts.
The plan includes money for infrastructure projects, health care, and renewable energy development.
With files from The Associated Press
