Obama unveils plan for troubled housing market

President Barack Obama pledged up to $275 billion on Wednesday to help stem a wave of home foreclosures that sparked the U.S. financial meltdown, the next phase in an effort to lift the country out of recession.

Obama, who on Tuesday signed a landmark $787 billion economic stimulus bill mixing government spending and tax cuts, rolled out details of the plan in Arizona, a state hammered by the housing crisis.

"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 continue to deepen," Obama said.

Treasury Secretary Timothy Geithner told reporters he expected the plan to work quickly to help the housing market, and that it would bolster efforts to restore the financial system to good health.

But financial markets reacted skeptically to the plan.

U.S. stock prices were lower in early afternoon trading. Earlier, the Dow Jones home construction index fell about 2 percent after government data showed U.S. housing starts and building permits dropped to record lows last month as a glut of unsold houses and a slump in demand spurred builders to shelve construction plans.

Obama's strategy has three main components.

  • a $75 billion fund would subsidize homeowners struggling to pay their mortgages.

  • housing finance companies Fannie Mae and Freddie Mac may invest a further $100 billion in mortgages to mop up more home loans and spur fresh lending.

  • Washington may inject a further $100 billion into each of the mortgage giants, protecting them against losses as they expand their massive reach into the housing market.

The housing crisis has played a central role in the financial and credit turmoil that spread across the globe, with many U.S. homeowners saddled with mortgages they cannot pay.

The housing package was meant to be a more politically popular aspect of Obama's plans to rescue the economy. His administration's plan to shore up the financial industry was met with a dive in stock prices last week.

"This plan is good, but it is unnecessarily complicated," said Michael Cheah, senior portfolio manager at AIG SunAmerica Asset Management in New Jersey.

"Every effort helps, but the question is effectiveness. I think it could come with side effects, like people trying to game the system."

Keeping Americans in Their Homes

Andrew Bekoff, chief investment officer at LPB Capital LLC in Pennsylvania said the measures could make a difference.

"The plan has a real shot to help. The combination of government action and additional funding Fannie and Freddie should help keep millions of Americans in their homes."

Obama, a Democrat who succeeded Republican George W. Bush on January 20, battled with opposition Republicans in Congress to pass the stimulus plan, his first major political victory in office.

Leaders of both political parties have called for measures to address the housing crisis.

At the end of last year, just over 9 percent of all home loans in the United States were in arrears or already in foreclosure, the Mortgage Bankers Association has said.

A total of 8.1 million U.S. homes, or 16 percent of all households with mortgages, could fall into foreclosure by 2012, according to a report by Credit Suisse.

An Obama administration official said the total plan commits up to $275 billion for housing, including $50 billion from funds already committed in the financial sector bailout plan. It aims to help up to 9 million American families.

Aware of critics who might charge that it would help people who took on far more debt than they should have, Obama said his plan was aimed at "rescuing families who have played by the rules and acted responsibly," refinancing traditional mortgages for up 5 million homeowners who now are close to owing more than their homes are worth.

It will also establish a $75 billion fund to reduce monthly payments for another 3 million to 4 million homeowners "stuck in sub-prime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune," he said.

[Fuente: By Caren Bohan and Jeff Mason, Reuters, Mesa, Arizona, 18Feb09]

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