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President Obama announces his housing plan at Dobson High School in Mesa, Ariz. © Jim Watson/AFP/Getty Images
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WASHINGTON — The Obama administration announced new plans Wednesday to make it easier for up to 9 million people to rework or refinance their mortgages, as the White House began an aggressive effort to stabilize the housing market.
In describing the strategy during a press conference in Phoenix, President Obama said the plan "will give millions of families resigned to financial ruin a chance to rebuild … 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 to shore up housing prices for everyone."
A central element of the plan would allow up to 5 million people to refinance their mortgages into more affordable products through Fannie Mae and Freddie Mac, according to a summary of the plan.
A total cost of the effort wasn't immediately clear, though it could eclipse more than $275 billion because of new commitments to the Fannie Mae and Freddie Mac.
The Obama administration's plan has three main elements: an effort to help homeowners refinance; an effort to help stabilize the housing market through a $75 billion initiative aimed at reaching up to 4 million at-risk homeowners; and an element that aims to drive down mortgage rates.
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"The effects of this crisis have also reverberated across the financial markets," President Obama said. "When the housing market collapsed, so did the availability of credit on which our economy depends."
The administration pledges government money to separately entice homeowners, mortgage companies and mortgage investors to rework loans. It would help a variety of homeowners, including those whose mortgage is more than the value of their home.
The housing plan is part of a broader effort by the government to address the volatile economy and it comes after Congress passed a major stimulus package and the Treasury Department released its plan to shore up the banking sector.
Fannie Mae and Freddie Mac, which are privately held companies under government control, figure prominently in the housing plan.
The companies generally are prevented from owning or guaranteeing mortgages that are more than 80%of a home's value, as those loans are seen as much riskier. But the Obama plan would allow them to buy or guarantee these riskier loans if they already own or guarantee them. This could be possible if a $80,000 loan was purchased by Fannie Mae last year for a $100,000 house, but the house is now worth just $75,000.
"This will allow millions of families stuck with loans at a higher rate to refinance," Obama said. "And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures."
The government said it would increase its limits on the size of Fannie Mae and Freddie Mac's portfolios to $900 billion each up from $850 billion. Treasury also said it would increase its funding commitment to both companies "to ensure the strength and security of the mortgage market and the help maintain mortgage affordability."
Treasury also plans to increase its preferred stock purchase agreements with the companies to $200 billion each from $100 billion each.
