Obama Pledges $275b To Foreclosure Prevention

To stop the foreclosure spiral, the Obama administration has pledged $200b to shoring up Fannie and Freddie, and $75b to help lenders make loan balance and rate modifications to get troubled borrowers to have debt-to-income ratios of 31%. The $200b would be directly from Treasury and the $75b would come from remaining TARP funds. This is designed to help borrowers and try to put a floor under a housing prices that have been plagued by foreclosures. Excerpts from a Bloomberg report:

U.S. President Barack Obama pledged $275 billion to a program that will cut mortgage payments for as many as 9 million struggling homeowners and expand the role of Fannie Mae and Freddie Mac in curbing record foreclosures.

The plan also will help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie and Freddie, according to a White House fact sheet. Treasury will buy as much as $200 billion of preferred stock in the two mortgage companies, twice as much as previously promised, the announcement said.

…Obama said he will support revamping U.S. bankruptcy rules to let judges reduce mortgages on primary residences to fair- market value as long as borrowers pay their debts under a court- ordered plan.

The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowers’ payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower’s income, with government sharing the cost to further cut the rate to 31 percent.

Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower’s mortgage balance, the government said. The program may help as many as 4 million borrowers, the administration said. The average borrower’s home value could be stabilized against a price decline by up to $6,000, the White House fact sheet said.

…Companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 for three years when the borrower stays current, the government said. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan.

Mortgage servicers will get $500 and loan holders $1,500 to modify agreements as an incentive for the industry to seek out borrowers at risk of falling behind on their payments.

…Treasury will increase the size of Fannie and Freddie’s retained mortgage portfolios, to $900 billion, allowed under the preferred stock agreement included in the September federal takeover of the two mortgage-finance companies.

…Banks including Citigroup Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Bank of America Corp. have agreed, at the request of lawmakers, to suspend foreclosure proceedings until the Obama plan is adopted. The Office of Thrift Supervision last week urged the lenders it oversees to suspend foreclosures.