As many as 9 million homeowners who are facing foreclosure or struggling with skyrocketing monthly mortgage payments could save their homes under the terms of a home rescue plan President Obama unveiled yesterday.
When the Bush economy began to tank more than a year ago with banks failing and jobs vanishing, foreclosure signs and abandoned houses began sprouting in working and middle class and even up-scale neighborhoods around the nation. The AFL-CIO first called for a homeowners’ lifeline in late 2007. But the Bush administration preferred to bailout Wall Street instead of throwing a lifeline to Main Street. Says AFL-CIO President John Sweeney:
The swift action by the Obama administration to address the housing crisis is a welcome and refreshing change.
For more than a year, the Bush administration ignored calls from the AFL-CIO and others to address a coming foreclosure tsunami. Tragically, in the months that followed, the deepening housing debacle turned millions of families’ lives upside down and strengthened its chokehold on our economy
Nearly one in 10 mortgagers are either delinquent or in foreclosure and economists predict that without an initiative to help troubled homeowners, as many as 8 million homes could fall into foreclosure during the next four years. Said Obama in announcing the $275 billion housing plan:
Ts plan will not save every home, but will give millions of families facing financial ruin a chance to rebuild. 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 shore up prices for everyone.
The plan would help some 4 million homeowners who are now at risk of losing their homes. It will provide incentives to lenders to change the terms of those loans to make them more affordable.
It also would help some 5 million homeowners who are current with their payments but have seen their monthly payments soar because of new high interest rates on their adjustable rate mortgages that threaten their ability to stay current. They have been unable to refinance because their home values have plunged, leaving them without enough equity in their homes to qualify for lower rate loans. The plan would allow them to refinance through Fannie Mae or Freddie Mac, which under the initiative received about $200 billion to increase available credit.
Another major provision of the Obama housing program would allow bankruptcy judges to change the terms of mortgages and reduce monthly payments to allow homeowners who are in bankruptcy to stay in their homes. But Congress must approve changes in bankruptcy laws before that can occur. Says Sweeney:
The strong plan from the administration correctly includes changing the bankruptcy laws to allow judges to modify the mortgages of distressed homeowners, including reducing the principal of these loans to the property’s current market value.
The crisis could not be more dire. An estimated eight million homes will fall into foreclosure over the next four years. Bankruptcy reform is a critical piece of the solution for working men and women.
Financial columnist Felix Salmon, at Conde Nast’s Portfolio.com, says
this plan aims straight at the heartland, where it really matters. It’s a good start.
Barbara Sard, the director of housing policy at the Center on Budget and Policy Priorities (CBPP), told the American Prospect ”the plan looks very good in a number of respects” and calls the various government incentives aimed at encouraging financial institutions to modify loan terms “smart” and “clever.”
Former Labor Secretary Robert Reich says the home rescue plan is imperative to helping stabilize the nation’s economy:
We’re in an economic crisis. And a failure to put millions of homeowners on a firmer footing would send more shock waves throughout the economy. Not only will more people lose their homes—surrounding homes will lose value as well, as neighborhoods become blighted with more empty houses. And lenders, worried that even more borrowers can’t repay loans, will stop making additional ones.
Bertha Lewis, CEO of the community activist group ACORN, says the housing rescue plan
will finally put the full power of the federal government behind homeowners trying to pay the mortgage and neighborhoods reeling from the crisis. It is imperative that all lenders participate and agree to higher standards, and that Congress quickly pass the bankruptcy legislation.
But what kind of opposition does the plan face in Congress?
The Center for American Progress (CAP) notes that even before Obama’s plan was released, congressional Republicans were gearing up for another just say “No” campaign like the one staged against the economic recovery package. Of course Republicans complained loudly that the recovery package didn’t do enough for homeowners. Logic and consistency has never been their strong suit.