President Obama just spoke before a crowd in Mesa, AZ, unveiling his $75B foreclosure crisis plan.
Hereâ€™s a play-by-play of the speech:
This is a â€œcrisis unlike any weâ€™ve ever known.â€ Â Families canâ€™t afford to leave, but canâ€™t afford to stay.
- 6 million homes in foreclosure or at risk of foreclosure across the US.
- Study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as 9%
- Costs associated to local government for a foreclosure can be up to $20,000
- Created a credit crisis â€“ we all pay a price.
Plan will help between 7-9M families restructure&refinance
their mortgages to avoid foreclosure.Â It helps them, and their neighbors
by preserving neighborhood home prices.
Hereâ€™s how the plan will work:
1. Make it possible for 4-5M Freddie Mac&Fannie Mae loan holders to:
- refinance at lower rates
- changes the policy that Fannie and Freddie Â are generally not
permitted to guarantee refinancing for mortgages valued at more than 80
percent of the homeâ€™s worth
- enable families with higher loan rates who may be underwater to refinance
- Although Fannie & Freddie would take in less money from loans, they would lose less due to foreclosures
2. Create new incentives so that lenders can work with
borrowers to modify the terms of sub-prime loans at risk of default and
- sub-prime loans are only 12% of all mortgages, but about 50% of all foreclosures.
- establishes clear guidelines for mortgage industry that will encourage lenders to modify mortgages on primary residences
- lenders wanting to receive financial assistance from the government
and modify home mortgages must meet these guidelines, which will be in
place by March 4
- reduced payments must be no more than 31% of homeownerâ€™s income
3. Â Take major steps to keep mortgage rates low for millions of middle-class families looking to secure new mortgages
- Treasury and Federal Reserve will continue to purchase Fannie Mae
and Freddie Mac mortgage-backed securities to ensure stability and
- Treasury will provide up to $200 billion in capital to ensure that
Fannie Mae and Freddie Mac can continue to stabilize markets and hold
mortgage rates down
- will also work with state housing finance authorities
4. Pursue wide range of reforms to help families stay in home
- Continue support reforming our bankruptcy rules to allow judges to
reduce home mortgages on primary residences to their fair market value,
as long as borrowers pay their debts accordingly
- As part of the stimulus plan, award $2 billion in competitive
grants to communities bringing people together and testing new and
innovative ways to prevent foreclosures