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Obama To Push Housing Ideas Today In Arizona

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Los Angeles Times

Published: February 18, 2009

President Barack Obama is expected to roll out a plan today meant to keep struggling families from losing their homes.

The announcement is expected to be made in Phoenix, and comes on the heels of Obama signing the $787 billion economic stimulus package in Denver on Tuesday.

With Arizona as the backdrop to announce his housing plan, Obama is choosing a state hit hard by foreclosures. In January, more than 4,500 homes in Arizona were repossessed, third-most in the nation, according to RealtyTrac, a company that collects foreclosure data. California ranked first last month, and Florida was second.

Obama has dropped hints about the broad outlines of his housing plan, estimated at $50 billion to $100 billion and carved out of the Wall Street bailout money passed last October.

WHAT WE MIGHT SEE TODAY

Obama's announcement is expected to include details about how the administration plans to prod the mortgage industry to do a better job of modifying the terms of home loans so borrowers have lower monthly payments. A congressional Democratic aide said Monday that there would be two pieces to Obama's housing plan: changes in law that can be made only by Congress (such as empowering bankruptcy judges to restructure mortgages) and actions Obama can take by executive fiat.

What Obama's Said So Far

Obama has hinted at what might come. In Elkhart, Ind., last week, he said he would push for a new law that allows judges to rewrite the terms of a mortgage for homeowners who land in bankruptcy court. Also, in visiting Lee County's Fort Myers, considered the foreclosure capital of Florida, the president outlined an arrangement in which banks would accept lower payments from homeowners in return for an equity stake once housing prices recover.

Following FDIC's Lead?

A trial balloon floated last week suggests that Obama will follow the suggestions of Federal Deposit Insurance Corp. Chairman Sheila Bair, who thinks that banks must take some losses and get owners of distressed mortgages into a monthly mortgage payment that amounts to somewhere from 31 percent to 38 percent of their monthly after-tax income.

A Democratic Senate aide said the plan is likely to include hefty payments designed to encourage the lending industry to lower mortgage rates or reduce the total principal amount owed by borrowers. The idea has become attractive to Obama officials, the aide said, because it is expected to be far less expensive than having the government buy up loans out of mortgage-linked securities.

What It Could Cost

Howard Glaser, a mortgage industry consultant who served in the Clinton administration, said if 2 million borrowers' payments were lowered by $500 a month, it would cost the government and lenders $6 billion each a year, assuming lenders match half the cost.

Unlike previous loan modification plans, borrowers would not have to be in default to qualify, according to people briefed on the plan.

UPSIDE DOWN MORTGAGES

A key dilemma facing policy-makers is how to treat borrowers who owe on their mortgages far more than their homes are now worth.

•Lenders have fiercely resisted any plan that would force them to write down principal or otherwise take losses. There is a fear that borrowers will be reluctant to make loan payments on a home in which they have no equity.

•Many financial institutions have been reluctant to write down the principal on mortgages because doing so would make the banks' balance sheets, which are already fragile, even more precarious.

•Speculation in Washington is that the administration may suggest a standard refinancing plan in which mortgage payments could be set at 31 percent of the homeowner's gross monthly income.

WHY OBAMA IS UNVEILING A MORTGAGE ASSISTANCE PLAN

Because the foreclosure problem was allowed to fester so long, home prices nearly everywhere in the nation have fallen - making it impossible for many homeowners to refinance. Although lenders have beefed up their efforts to aid borrowers over the past year, their action hasn't kept up with the worst housing recession in decades.

•Analysts say the number of homeowners facing foreclosure could soar as high as 10 million in the coming years.

•The default rate is climbing for borrowers who had been in good standing as they join the ranks of the more than 3.6 million Americans who've lost their jobs since the recession began in December 2007.

WAIT-AND-SEE MORATORIUMS

•Fannie Mae, Freddie Mac, JPMorgan Chase & Co., Morgan Stanley, Citigroup and Bank of America last week agreed to halt foreclosures until March 6 to see how Obama's plan would affect them.

•In Florida, Coral Gables-based BankUnited and Fort Lauderdale-based BankAtlantic joined the group suspending foreclosures temporarily.

•The suspensions generally apply to single-family residences and small complexes of up to four units. Vacant homes and investor properties are excluded.

WHAT WE MIGHT SEE TODAY

Obama's announcement is expected to include details about how the administration plans to prod the mortgage industry to do a better job of modifying the terms of home loans so borrowers have lower monthly payments. A congressional Democratic aide said Monday that there would be two pieces to Obama's housing plan: changes in law that can be made only by Congress (such as empowering bankruptcy judges to restructure mortgages) and actions Obama can take by executive fiat.

UPSIDE DOWN MORTGAGES

A key dilemma facing policy-makers is how to treat borrowers who owe on their mortgages far more than their homes are now worth.

WHY OBAMA IS UNVEILING A MORTGAGE ASSISTANCE PLAN

Because the foreclosure problem was allowed to fester so long, home prices nearly everywhere in the nation have fallen - making it impossible for many homeowners to refinance. Although lenders have beefed up their efforts to aid borrowers over the past year, their action hasn't kept up with the worst housing recession in decades.

WAIT-AND-SEE MORATORIUMS

A wire report

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