NEW YORK, Feb 19 — US President Barack Obama threw a US$75 billion (RM270 billion) lifeline to millions of Americans on the brink of foreclosure yesterday, declaring an urgent need for drastic action — not only to save their homes but to keep the housing crisis "from wreaking even greater havoc" on the broader national economy.
The lending plan, a full US$25 billion bigger than the administration had been suggesting, aims to prevent as many as 9 million homeowners from being evicted and to stabilise housing markets that are at the centre of the ever-worsening US recession.
Government support pledged to mortgage giants Fannie Mae and Freddie Mac is being doubled as well, to US$400 billion, as part of an effort to encourage them to refinance loans that are "under water" — those in which homes' market values have sunk below the amount the owners still owe.
"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 continue to deepen," Obama said.
The new president, focusing closely on the economy, in his first month in office, rolled out the housing programme one day after he was in Denver to sign his US$787 billion emergency stimulus plan to revive the rest of the economy. And his administration is just now going over fresh requests for multiple billions in bailout cash from ailing automakers.
Wall Street has shown little confidence in the new steps, declining sharply on Tuesday before levelling off after yesterday's announcement. The Dow Jones industrials rose 3 points for the day.
Success of the foreclosure rescue is far from certain.
The administration is loosening refinancing restrictions for many borrowers and providing incentives for lenders in hopes that the two sides will work together to modify loans. But no one is required to participate. The biggest players in the mortgage industry temporarily had halted foreclosures in advance of Obama's plan.
Complicating matters, investors in complex mortgage-linked securities, who make money based on interest payments, could still balk, especially those who hold second mortgages or home equity loans. Their approval would be needed to prevent many foreclosures.
"The obstacles have not gone away," said Bert Ely, a banking industry consultant in Alexandria.
Another cautionary note came from John Courson, chief executive of the Mortgage Bankers Association.
"It seems to offer little help to borrowers whose loan exceeds their property value by more than 5 per cent," he said, noting that that requirement would limit the plan's success in some of the hardest-hit areas in California, Florida, Nevada and Arizona and parts of the East Coast.
Indeed, Obama himself said: "This plan will not save every home."
The goal is to lower many endangered homeowners' payments to no more than 31 per cent of their income. But that depends on a high degree of cooperation by lenders who have been increasingly wary of new lending as the crisis has deepened.
Still, the Obama administration, after talking with mortgage investors, appears confident that it is providing the right mix of incentives and penalties to make sure mortgage companies take part. Obama said he backs legislation in Congress to allow bankruptcy judges to modify the terms of primary home loans — an idea ardently opposed by the lending industry.
"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. Yet, he also added: "We must also acknowledge the limits of this plan."
He called on lenders, borrowers and the government "to step back and take responsibility" and said: "All of us must learn to live within our means again."
There's broad economic anxiety across the nation, an Associated Press-Gfk poll indicated.
Nearly three in four people say they know someone who has lost a job in the past six months as a result of the tough economic conditions, according to the poll, released yesterday. And more than half say they worry about being able to pay their bills and about seeing their retirement investments decline. So far, Obama's job approval rating still is high, at 67 per cent, and he is scoring strong marks for his handling of the economy.
The president unveiled his housing plan at a Phoenix-area high school in a state with one of the country's biggest foreclosure rates.
Nationally, Moody's Economy.com says that of the nearly 52 million US homeowners with mortgages, about 13.8 million, or nearly 27 per cent, owe more than their homes are worth after many months of declining prices.
How soon will the new plan show results?
"You'll start to see the effects quite quickly," Treasury Secretary Timothy Geithner told reporters in Phoenix, noting that rules governing the changes will be published on March 4.
In theory, homeowners facing foreclosure or borrowers owing more on their homes than their mortgages are worth would have more opportunities to refinance their loans so that they have lower monthly payments. Lenders would voluntarily participate in the government programmes.
The US$75 billion Homeowner Stability Initiative would provide incentives to mortgage lenders to cut monthly payments in an effort to persuade them to help up to 4 million borrowers on the verge of foreclosure. The goal: cut monthly mortgage payments to sustainable levels, using money from the US$700 billion financial industry bailout passed by Congress last fall.
Another part would specifically help people with dwellings whose market value has sunk below the principal still owed on the mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its programme will help 4 million to 5 million families do just that — if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.
To boost confidence, the Treasury Department said it would double its support to the two mortgage giants that the government essentially took over last fall.
It said it would absorb up to US$200 billion in losses at each company by using money Congress set aside last year and will continue purchasing mortgage-backed securities from them. Fannie Mae and Freddie Mac are projected to need a combined government subsidy of about US$66 billion, well short of the new promise of up to US$400 billion.
Obama emphasised that his plan focuses on helping families who have "played by the rules" stay in their homes.
But, he said, it will do nothing to help "the unscrupulous or irresponsible." He cited so-called speculators who took out risky loans on multiple properties to make money by selling them during the housing boom, lenders who took advantage of naive buyers by glossing over the fine print, and people who willingly bought homes that were way beyond their means.
"This plan will not save every home," Obama said. — AP
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