Obama pledges $275B to stem U.S. foreclosures

President Barack Obama has pledged $275 billion to a program that will cut mortgage payments for as many as 9 million struggling homeowners and expand the role of Fannie Mae and Freddie Mac in curbing record foreclosures.
The plan also will help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie and Freddie, according to a White House fact sheet. Treasury will buy as much as $200 billion of preferred stock in the two mortgage companies, twice as much as previously promised, the announcement said.
“It will give millions of families resigned to financial ruin a chance to rebuild,” Obama said last week. “By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”
The program signals the Obama administration plans to take a more aggressive stance to halt foreclosures than the Bush administration, which backed voluntary industry efforts. Record foreclosures in the past year are swelling the glut of properties on the market, forcing down home values and undermining homebuilders’ efforts to revive demand and lighten inventory by cutting prices.
U.S. builders broke ground in January on the fewest houses on record as a lack of credit and plunging sales exacerbated the worst real estate slump in 75 years. Confidence among homebuilders barely rose in February from a record low, an industry index showed, signaling the slump continues.
Obama said he will support revamping U.S. bankruptcy rules to let judges reduce mortgages on primary residences to fair-market value as long as borrowers pay their debts under a court-ordered plan.
The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowers’ payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower’s income, with government sharing the cost to further cut the rate to 31 percent.
Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower’s mortgage balance, the government said. The program may help as many as 4 million borrowers, the administration said. The average borrower’s home value could be stabilized against a price decline by up to $6,000, the White House fact sheet said. &#8226