WASHINGTON AND MESA, ARIZ. — President Obama unveiled a $75-billion federal plan to ease the epidemic of home foreclosures Wednesday, casting it as a lifeline for as many as 9 million homeowners and a means for ending the downward spiral of the economy.
The housing market collapse helped trigger the broader economic decline, the president argued, and so acting "boldly and swiftly" to arrest a wave of foreclosures would have positive effects across the economy and benefit every American.
"In the end, all of us are paying a price for this home mortgage crisis," Obama said. "And all of us will pay an even steeper price if we allow this crisis to deepen, a crisis which is unraveling homeownership, the middle class and the American dream itself."
Obama presented the plan at a high school outside Phoenix, in a state where about one out of every 182 homes faced some stage of foreclosure proceedings last year. Nationwide, there were 2.2 million foreclosures last year, and the administration expects as many as 6 million foreclosures in the "coming years," said Shaun Donovan, secretary of Housing and Urban Development.
The president's proposal aims to assist two broad classes of homeowners.
The administration says the plan will help as many as 5 million people whose homes have lost so much value that they cannot qualify for conventional refinancing to take advantage of today's low interest rates. Under the plan, eligible homeowners could switch to lower-rate mortgages through Fannie Mae or Freddie Mac, the home loan giants, and potentially cut thousands of dollars from their payments each year.
In addition, the administration intends to help as many as 4 million homeowners at risk of foreclosure because of job losses or other effects of the recession, or because of increases in adjustable-rate mortgages.
The goal is to bring mortgage payments down to a more reasonable level, defined as 31% of monthly income. It will cost $75 billion, which would come from the $700-billion financial services industry bailout that Congress approved last year.
The plan gives financial incentives to lenders and mortgage servicing companies to encourage them to help people refinance.
In addition, Obama's plan would use money already approved by Congress to enlarge the government commitment to Fannie Mae and Freddie Mac "to ensure the strength and security of the mortgage market," the administration said.
