US President Barack Obama was set on Wednesday to unveil a plan to stabilise the troubled housing market, a main cause of the economy’s deepening slump.
Fresh from signing into law a sweeping $787-billion fiscal stimulus package, Obama is turning his attention to the housing market, where foreclosures have continued to climb despite earlier initiatives aimed at halting that trend.
The Obama plan will involve government subsidies to mortgage servicers and lenders to encourage them to lower payments for borrowers in distress.
The aim is to bring mortgage payments to a more affordable range of about 31% of borrowers’ incomes.
The Obama administration has closely guarded the details of the roughly $50-billion plan but sources familiar with it have made clear it would be bolder than prior efforts to stem foreclosures.
Obama will outline the plan in a speech at a high school in Mesa, Arizona at 5.15pm GMT. It marks the second day of a two-day campaign-style swing Obama is taking to highlight his economic initiatives.
On Tuesday, he signed the stimulus Bill into law at an event in Denver where he touted initiatives in the package aimed at encouraging the development of alternative energy sources, such as solar and wind power.
Obama said the stimulus package would ”mark the beginning of the end” of the ills facing the economy, though he said it would not solve all the problems.
On Wall Street, continued worries about the global economy sent US stock prices down toward their lows reached in November. The Dow Jones industrial average fell 297,81 points, or 3,8% to 7 552,60.
The Obama administration faces pressure to ensure the roll-out of the housing plan goes as smoothly as possible.
‘Much needed relief’
A plan last week by Treasury Secretary Timothy Geithner to address the turmoil in the banking industry led to a drop in stock prices as investors panned it as lacking in detail.
An overhang of bad mortgage debt has contributed to the economy’s difficulties because it has made it harder for consumers and businesses to get loans from banks.
Stabilising the housing market could ease some of the problems with the banks.
At the end of last year, just over 9% 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 US homes, or 16% of all households with mortgages, could fall into foreclosure by 2012, according to a report by Credit Suisse.
Arizona has been particularly hard hit by the mortgage crisis. Last year, foreclosures in the state totaled 117 000, the third highest in the United States.
A Democratic official familiar with Obama’s housing plan said it would ”help responsible homeowners afford their mortgage payments”.
”It will enable millions of Americans to refinance or modify their mortgages to get their monthly payments down, giving them much needed relief in this time of economic distress and preventing millions of avoidable foreclosures,” the official said.
One source said the incentives to rework loans could be as high as $800 to $1 000 per loan.
While the government subsidies would help entice companies to ease payments, the plan also includes other steps to prod them along.
Obama could renew his call for legislation that would allow bankruptcy judges to rewrite mortgage terms and might voice support for legislation that would protect mortgage servicers who rework loans from lawsuits from investors in mortgage bonds. – Reuters