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Source: Reuters -
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US president Barack Obama has pledged up to $US275 billion to help stem a wave of home foreclosures that sparked the US financial meltdown, the next phase in an effort to lift the country out of recession.
Obama, who on Tuesday signed a landmark $US787 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.
US stock prices were lower in early afternoon trading. Earlier, the Dow Jones home construction index fell about 2% after government data showed US 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 subsidise homeowners struggling to pay their mortgages.
- Housing finance companies Fannie Mae and Freddie Mac may invest a further $US100 billion in mortgages to mop up more home loans and spur fresh lending.
- Washington may inject a further $US100 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 US
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 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% 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.
An Obama administration official said the total plan commits up to $US275 billion for housing, including $US50 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 $US75 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.
