Obama unveils $75-billion plan to avoid home foreclosures

A day after completing the $787-billion stimulus package, US president Barack Obama on Wednesday outlined a $75-billion housing foreclosure mitigation plan, which may help about nine million  homeowners modify their mortgages. The programme takes effect on 4 March.

The salient features of the plan are to allow 4-5 million home owners to refinance their loans through government institutions Fannie Mae and Freddie Mac. This initiative is intended to help homeowners who have seen their mortgage payments rise to about 50-per cent of their monthly income due to the current recession. It also calls for a uniform loan restructuring rule to modify their mortgages to lower monthly interest rates through any participating lender.

The plan allows homeowners who are current on their payments to refinance their mortgage to a lower rate but cannot as they do not have the 20 per cent equity now required due to significant slump in valuation.

To help fund the programme, the US treasury is hiking an existing funding commitment to Fannie Mae and Freddie Mac. It will buy $200 billion of Fannie and Freddie preferred stock, up from its previously preferred stock purchase agreement of $100 billion. It also will allow Fannie Mae and Freddie Mac to buy $900 billion mortgage backed securities.

Although Obama said the plan ''would not save every home,'' a White House release says the measure would help ''up to 7 to 9 million families refinance or restructure their mortgages to avoid foreclosure.''

"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 subprime 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," Obama said.