2-19-09, 9:32 am
What do you do when congressional Republicans, out of a rigid ideological desire to see you fail, appear set to block any proposal you make? Go around them. The main components of a new Obama administration plan to aid struggling homeowners keep their homes and make their mortgage payments would do just that, according to details released by the White House this week.
President Barack Obama unveiled the plan to help about 9 million families facing home foreclosure Feb. 18 in Mesa, Arizona.
The plan 'will give millions of families resigned to financial ruin a chance to rebuild,' President Obama stated. '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 everyone.'
According to the president, the new plan takes four basic actions. First, he will order government-owned Fannie Mae and Freddie Mac to lift their restrictions on mortgage refinancing to help between 4 and 5 million homeowners covered by those institutions.
The net cost of this aspect of the plan is zero, Obama emphasized. Lower payments made to Fannie Mae and Freddie Mac would be off-set by a smaller rate of foreclosure. Taking steps to foreclose on a home is more costly to the lenders than refinancing.
The second part of the plan would put an estimated $75 billion toward providing incentives for other lenders who have accepted TARP money to refinance subprime mortgages currently at risk of default or foreclosure. In addition, the plan creates subsidies to reduce payments to no more than 31 percent of household income. According to White House estimates, this part of the plan could help about 3 to 4 million homeowners keep their homes by better helping them afford their mortgage payments.
A third step will help ease the credit crunch and start to tackle the general financial crisis by using TARP funds that have already been authorized by Congress to buy back toxic mortgage-backed securities held by Fannie Mae and Freddie Mac. In addition, Obama pledged to work with state housing agencies to increase their liquidity. Once greater liquidity is achieved in the credit market, other homeowners not covered in this plan will find refinancing easier in the future.
For its fourth proposal, the Obama administration will ask Congress to reform bankruptcy law to allow judges to reduce mortgage payments as part of a court-ordered settlement to allow families to keep their homes and make their payments.
Because this four-part plan focuses only on mortgages on primary residences and primarily on middle-income housing markets covered by Fannie Mae and Freddie Mac, the plan excludes real estate speculators and investors and aims to help working families first.
During his speech in which he explained the plan, Obama thumped bankers, speculators and Washington politicians who sought easy profits or looked the other way when bad business decisions were being made in the past. 'We saw an erosion of our common values and in some cases in common sense,' the president said.
GOP alternative
Obama's housing plan sharply contrasts with a proposal put forward by Senate Republicans as an amendment to the economic stimulus bill earlier this month. In the GOP plan, the government would have spent tens of billion dollars to provide a $15,000 tax credit to any person who buys a home in 2009. Senate Republican leaders touted their amendment as a way to 'fix housing first.' None of the Republicans who supported the amendment, which passed, ended up voting for the economic stimulus bill.
Critics of the GOP alternative pointed out, however, that the GOP proposal essentially would have guaranteed a profit of at least $15,000 to real estate speculators seeking to take advantage of low prices on foreclosed homes. Economist Dean Baker called the plan a 'housing flipping subsidy' that would have ended up costing about $75 billion and would have done nothing to fix the underlying problems in the housing market.
In the final compromise stimulus package, conference negotiators paired the GOP tax credit to $8,000, capped eligibility by income, and limited its scope to first-time home buyers in order to eliminate real estate profiteering.
Praise for Obama's plan
The Obama plan won immediate praise from progressive groups. ACORN, which has launched a nationwide campaign to help families keep their homes, described the housing package as an 'urgent sequel' to the economic stimulus package.
'Finally, a President who is a friend of homeowners when it counts,' exclaimed Bertha Lewis, ACORN CEO, in a Feb. 18th statement. 'With 8 to 9 million Americans on the verge of losing their homes in the next four years, the nation's housing crisis demands leadership commensurate with its enormous scale, and we got that today from the Obama administration.'
Lewis pressed further, however, for a moratorium on foreclosures until the Obama plan could take effect. 'There should not be a single foreclosure on any family that could benefit from this comprehensive housing plan, so we need a thorough, binding moratorium,' she said.
Associate Director of the Center for American Progress' Economic Mobility Program Andrew Jakabovics added, Obama's plan is 'light years ahead of anything we saw coming out of the Bush administration.' He saw Obama's plan as 'systematic' and 'sufficiently comprehensive' to stem the tide of foreclosures.
According Jakabovics, the only part of Obama's plan that would need congressional approval is the proposed change to bankruptcy law. The major components of the bill that address the issue of refinancing can be ordered directly by the White House. The use of TARP funds also falls under the purview of the Treasury Department.
Treasury Secretary Timothy Geithner predicted that the effects of the plan could be seen very quickly.
