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Obama's Ambitious Housing Plan

President Obama today unveiled the third leg of his economic recovery stool -- and it was a bit more substantial than had been anticipated. His plan could cut mortgage payments for as many as nine million homeowners.

Alison Vekshin writes for Bloomberg: "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....

"The plan also will help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie [Mae] and Freddie [Mac], 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."

Michael A. Fletcher and Renae Merle write for The Washington Post: "Finance companies cannot currently refinance a loan if the homeowner owes more than 80 percent of the home's value. But under the plan, Fannie and Freddie -- which were taken over by the government last year -- would be able to refinance a mortgage if it does not exceed 105 percent of the current value of the property."

Here are Obama's prepared remarks. The White House also released an executive summary, a fact sheet, a FAQ and a sample worksheet.

From Obama's remarks: "The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments....

"Through this plan, we will help between seven and nine million families restructure or refinance their mortgages so they can avoid foreclosure. And we are not just helping homeowners at risk of falling over the edge, we are preventing their neighbors from being pulled over that edge too – as defaults and foreclosures contribute to sinking home values, failing local businesses, and lost jobs."

Obama also said his "administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value – as long as borrowers pay their debts under a court-ordered plan."

David Leonhardt wrote in this morning's New York Times that "there are two different groups of homeowners who are at risk of foreclosure.

"The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.

"The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off."

Despite signs that Obama would focus primarily on the first group, the plan he announced this morning will address a good chunk of the second group as well.

By Dan Froomkin  |  February 18, 2009; 1:28 PM ET
Categories:  Financial Crisis  
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Are you responsible for your neighbor’s bad decisions?

Obama and Congress appear to think so. Is there any common sense in this program?

Posted by: JamesRaider | February 18, 2009 3:06 PM | Report abuse

Of course we are not responsible for our neighbor's bad decisions.

But you know, I'd rather not lose my job and then my house because of my neighbor's bad decisions. So like it or not our neighbor's bad decisions effect our lives and I'd rather see them helped out so I don't lose my job and home.

If the economy continues to falter the jobs cuts will not end and we'll blow right past the predicted 9% unemployment rate. The economy is shedding 2 MILLION jobs a month. Do we really want to see another depression with 25% unemployment? Apparently the Hoover Republicans in Congress do.

Posted by: troyd2009 | February 18, 2009 3:15 PM | Report abuse

Wow, so all this time me being responsible and paying my mortgage on time, not buying a house I couldn't afford, staying employed and scrimping and saving to make ends meet, was a waste?

Unicorns and Rainbows!

Posted by: luca_20009 | February 18, 2009 3:26 PM | Report abuse

The sad fact is, for all of us who bought a house we could afford and paid our bills and followed the rules are going to be affected by the less fortunate as well as the intentional screw ups. If your neighborhood is empty, your house value goes down no matter how perfect your behavior was. Whether the owners were foreclosed because of medical bills (#1 answer on the board) that exceeded their insurance, or if they were profligate spenders who ate pizza every night in front of an 80 inch flat screen matters absolutely zilch. As this crisis goes on, the narrative will of necessity change from the ants and the grasshopper story to the John Dillinger, steal more with a fountain pen than a gun narrative. That's your punishment for voting conservative/ republican, because they spent the last thirty years shifting the burden of running the country from the wealthy to the middle class and poor, with the added bonus of wars fought for corporate advantage and the end of your civil liberties.

Posted by: sparkplug1 | February 18, 2009 3:42 PM | Report abuse

President Obama states he will "...focuses on rescuing families who have played by the rules and acted responsibly...". What exactly are these "rules" and who will decide if they were followed? How will "acted responsibly" be determined and who will make this determination? How much new government is it going to take to manage this program and will the administrative funds be subtracted from that going to the families? How much of each dollar will be spent in expenses and how much of it will reach the homeowner?

Posted by: mwilsonfmu | February 18, 2009 4:14 PM | Report abuse

Rescuing these folks is an unfortunate necessity. Too many foreclosures drive down the price of all housing in a community. What is needed is a rule that when these folks eventually sell at a profit, the government gets its subsidy back.

Posted by: allentown1 | February 18, 2009 4:25 PM | Report abuse

Welcome to the reality of Rush Limbaugh's where the wealthy got wealthier thru more and more tax cuts and business was void of once again the brunt of fixing this mess will fall on those who pay the most taxes...the middle and lower class...the program is a necessary evil...yes the lower and middle class are getting some relief...there is little more that Obama can do to dig us out of this disaster...this is what years of republican leadership has wrought on the is on the verge of collapse...hopefully Obama is on the right track to repair as much damage as possible, but I fear that a good bit of the damage is simply beyond the republican party into total extinction would be suitable down payment for the disaster they have created.

Posted by: constwkr | February 18, 2009 5:09 PM | Report abuse

Where is the common sense in this issue? If the people needing assistance acted responsibly then why do they need bailed out? I have a house I can afford. I was told I qualified for much more than I was willing to finance. Many times the mortgage officer offered me more, more, and even more. I know my finances and was not willing to take more risk than I felt comfortable with. Now I see people who were not prudent or bought with the idea of making some quick cash or just plain shouldn’t have been considered for a loan in the first place, will soon receive a largess at my expense. It is my expense because this money comes from tax collected from me and you. If the government truly wants to be charitable, then cut my taxes so I have more in my pocket and let me donate to those whom I feel worthy of such compassion. If you want to help your neighbor, go right on ahead. Just don’t force me to do it as well.

Posted by: NeavadaDad | February 18, 2009 5:38 PM | Report abuse

...the republicans did cut your taxes...and let the industry run wild and rampant...and see where that got us? YOu want more tax cuts huh? Welp...sorry...but the republican's and their tax cuts have brought the country to the point of collapse...and unless you're one of the lucky who raked in billions during their reign...your job will be axed soon if this is not turned cuts for folks without jobs don't mean nothin...get a grip...

Posted by: constwkr | February 18, 2009 5:48 PM | Report abuse

Constwkr, my tax cut from the Bush era was about $2000.00 per year. When his cuts are rescinded by the current administration and I get a whopping $400 from the Obama stimulus plan I will have $1600 less to spend how I want. But, now maybe your neighbor will get my money for his house. It’s not very fair if you ask me. I could use the money myself and I don’t ask for much. All I want is to keep more of what I earn. Don’t you?

Posted by: NeavadaDad | February 18, 2009 6:24 PM | Report abuse

Here comes the real community organizer. Take from the 90% who work hard AND watch their finances, and give to the 10% who made bad decisions. There will be more.... Community organizers do not have to make a profit. They just spend some one else's money.

Posted by: rogerhbh | February 18, 2009 11:40 PM | Report abuse

We who read and comment on Dan's blog are collateral damage in the economy.

It's hard for many, perhaps nearly all Americans, to comprehend the scope of the problem. Economic crises of this scope don't spare the innocent.

We are literally ALL in this together. To be sure, some will have more financial pain than others. But you need to accept that your home value is dependent upon your neighbors' values.

It's like gravity: You may not like it, but it will still affect you. The sooner we work our way out of it the better we will all be. In a world where $35 billion institutions can fail in less than a week, we have to understand that half measures are no longer adequate.

Posted by: boscobobb | February 19, 2009 1:03 AM | Report abuse

right now I NEED A JOB....haven't had one since July...the tax cut concept won't help me or the other millions who don't have an income...

Posted by: constwkr | February 19, 2009 6:54 AM | Report abuse

I'd like to see someone explain this reasoning further: "But you know, I'd rather not lose my job and then my house because of my neighbor's bad decisions."

How, exactly, will your neighbor's bad luck cause you to lose your job and your house? Explain, please.

And "If your neighborhood is empty, your house value goes down no matter how perfect your behavior was." Um, so what? Most of us aren't planning on moving - perhaps because we can't AFFORD to move. That's not a reason to pick others' pockets; we're having enough trouble paying our own loans, let anone our neighbors' loans.

I've yet to hear a valid reason for bailing out fools who knowingly took loans they knew they couldn't afford. Let's not bail out the house-flippers, the investors, and the scammers who are crying because they can't afford five or six "owner occupied" homes.

There's great anger out there over this; it reminds too many people of the old Democratic welfare plan that encouraged bad behavior and self-destructive decisions. (Which, btw, this 'stimulus' plan will bring back. Look it up.)

Posted by: PaulinNJ | February 19, 2009 7:44 AM | Report abuse

PaulinNJ - Here's one.

Seven years ago, Jack and Jill bought a house they could afford in a modest suburban neighborhood. Jack works as a public school teacher; Jill works for a motel chain.

Their friends next door, Adam and Eve, moved in six years ago. They also were prudent in their financial decision. Adam is a salaried (white collar) employee at their town's largest manufacturer; and Eve is home-schooling their three children (and receiving the per-student funding available from the state).

Last year, Adam's employer closed the plant where he works and laid off everyone. This had a negative impact on the entire town. Adam's unemployment check was a pittance of his previous salary, but they got by until that ran out. Adam and Even both searched valiantly for work, but even low-paying jobs were drawing hundreds of applicants.

Relocating would mean selling their home at a loss (in a market where nobody was buying) or just walking away and losing both the home and their good credit. Anyway, things are now terrible for Adam and Eve.

Next door, Jill is concerned about possibly losing her job -- without the major industry in town, the motel is no longer filling up with visitors. The number of vacancies are rising every night.
Adam's job is still secure, however, student enrollment is decreasing as more and more families give up and move away or move into a relative's home while they try to regroup and seek new employment somewhere.

For Sale signs around the neighborhood are a common sight; and soon foreclosure signs start cropping up.

Both homes are now valued at much less than before. Because Adam and Eve only had to finance 60% of the sale price when they bought, they still have a bit of equity, but no income. Jack and Jill, on the other hand, financed 80% of their purchase price, and are now owing more than the current assessed value of the home.

Which of these couples do you consider to be the "fools" that don't deserve a break?

Posted by: lisa9 | February 19, 2009 10:53 AM | Report abuse

Obama will help only those that buy him votes. Union members, government employees and urban poor. The rest of us are screwed.

Posted by: thebink | February 20, 2009 7:43 AM | Report abuse

Lisa9, you need to read more carefully. You would have noted that I save my scorn for those who "knowingly took loans they knew they couldn't afford." Where in your example do you show that either couple did that?

I sympathize with, and know many, people who -- THROUGH NO FAULT OF THEIR OWN -- are in deep do-do. I have ZERO sympathy for "the house-flippers, the investors, and the scammers who are crying because they can't afford five or six 'owner occupied' homes."

How about you? Are you saying that everyone should be bailed out - even those who lied on the loan applications and those who tried to game the system? 'Cuz if you are, you're definitely in the minority.

Posted by: PaulinNJ | February 20, 2009 10:04 AM | Report abuse

The logic of this whole thing seems to be flawed. On the one hand, the rational for
for the mortgage bailout is that if homes
are forclosed on, they become vacant, harm the neighborhood, go on the glutted market and therefor continue the downward spiral of home values. But at the same time - we are only going to help the people that "deserve" to be helped and meet certain requirements. This implies that some, if not most neighborhoods will have a lot of vacant houses still.
So if it is home values we are trying to prop up, we should help all homes heading to foreclosure, regardless of circumstance. If we want to provide subsidized houseing for people who can't afford it on thier own, then we should provide a program for that. But lets figure out what we are trying to do, and at least be honest about it.

Posted by: mckphx | February 20, 2009 4:29 PM | Report abuse

Mckphx, the problem with the Homeowner Affordability and Stability Plan -- at least as far as the details are known so far -- is that it rewards the wrong kind of behaviors. If you're deep in consumer debt, this plan will help you! But if you didn't allow yourself to go deep into debt, sorry; all you get is the bill for the other guy.

We'll have to see the full details of the plan (in two weeks!), but what I've seen so far is not encouraging.

Posted by: PaulinNJ | February 20, 2009 6:44 PM | Report abuse

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