Barack Obama unveiled a string of measures yesterday to tackle America’s crippling housing crisis that aim, with the help of as much as $75bn (£53bn) in public money, to give assistance to borrowers who are in homes now worth less than the total of their mortgage or who are on the brink of defaulting.
The proposal, presented by President Obama in Phoenix, Arizona, which has been hit hard by galloping foreclosure rates, was more expansive than expected and represents the third leg of his strategy to right the US economy alongside the stimulus bill he signed on Tuesday and the bank rescue plan that is still being developed.
Mr Obama was at pains to insist that money is not being given to “rescue the unscrupulous or irresponsible”, a reference to the lenders who obfuscated the small print on sub-prime loans and borrowers who bought homes well aware they couldn’t afford them. At its heart is a $75bn Homeowners Stability Initiative that will offer incentives to lenders to lower monthly interest payments for distressed borrowers to levels that will equal no more than 31 per cent of their incomes. As many as four million homeowners could benefit, the Treasury calculates.
Meanwhile, Mr Obama is seeking to change the rules to allow those with homes worth less than the principal still owing on their mortgages to refinance on more manageable terms. This would potentially benefit another five million Americans with mortgages backed by Fannie Mae or Freddie Mac, the two mortgage institutions taken over by the government last year. “In the end, 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 deepen,” the President said.Reuse content