$50B Aimed at Stemming Foreclosures of Mortgage Loans

President Obama will be in Phoenix, Arizona tomorrow to announce the plan his administration hopes will boost the dilapidated housing market. It is expected that $50 billion of the current economic stimulus bill will be set aside as a housing relief plan. Reducing the number of foreclosures and defaults on mortgage loans will be a primary goal of the plan. Many real estate analysts expect foreclosure rates to increase dramatically in the next few years, as over 2 million homes went into foreclosure in 2008. Arizona was ranked number three in the nation for foreclosures. The state is also struggling with the economic downturn, as unemployment was nearly 7 percent at the end of the last year. By choosing Arizona as the place to unveil the details of a plan to help the housing sector, President Obama will be able to reach out to the very people who have been most affected by the economic crisis.
The President signed the new $787 billion economic stimulus bill today in Denver. As he spoke to the press, he made it clear that one of the aims of the housing relief plan is to help responsible consumers who are having difficulty making payments on their mortgage loans or are in danger of foreclosing, as well as help stem decreasing property values. The drop in values has affected homeowners in most areas of the country. One survey by Zillow demonstrated that of every six people who ownstheir homes, one is now in a situation of owning a home worth less than the mortgage on that home. Zillow estimates that the housing market lost over $3T the past year. Shrinking home values make it more difficult for homeowners to refinance mortgage loans and sell their properties. Add that to the current glut of inventory of unsold homes due to foreclosures and tighter lending standards, and the housing market looks like a sinking ship. It is expected that the housing plan will offer voluntary incentives to lending institutions to reduce payments on mortgage loans to as low as 31 percent of pretax income for qualified consumers. The plan will aim to reduce monthly payments on mortgage loans, rather than reduce the principal on properties. Making mortgages more affordable will also likely be another goal. That could be accomplished through opportunities to let homeowners hit by declining values undergo refinancing and through decreased interest rates for new mortgages.
The housing relief plan will not mean that everyone who is in trouble with their mortgage loans will get to keep their homes. But the goal of the housing aid package is to help conscientious homeowners keep their homes, in an effort to help the battered housing market begin to recover. History will be the judge of whether or not the plan will work.