Obama administration launches housing plan

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  A sale pending sign is seen for a real estate listing, Tuesday, March 3, 2009 in Gloucester, Mass. The number of homebuyers who agreed to purchase an existing home sank to a new low in January as economic woes turned them away from the staggering housing market, the National Association of Realtors said Tuesday.

The Obama administration kicked off a new program Wednesday that's designed to help up to 9 million borrowers stay in their homes through refinanced mortgages or loans that are modified to lower monthly payments.

The Treasury Department released detailed guidelines designed to let the lending industry know how to enroll borrowers in the program announced last month.

"It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets," Treasury Secretary Timothy Geithner said in a statement.

The administration, launching what it calls the "Making Home Affordable" initiative, said that borrowers will have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship" to qualify for the $75 billion loan modification program, which runs through 2012.

Borrowers are only allowed to have their loans modified once, and the program only applies for loans made on Jan. 1 2009 or earlier. Up to 4 million borrowers are expected to qualify. Mortgages for single-family properties that are worth more than $729,750 are excluded.

Separately, up to 5 million borrowers who have mortgages held by government controlled mortgage finance giants Fannie Mae and Freddie Mac should be eligible to refinance through June 2010.

Meanwhile action to put in place another part of Obama's housing plan is expected soon on Capitol Hill.

House Democrats, under pressure from a group of moderates in their ranks and the banking lobby, agreed Tuesday to narrow legislation that gives bankruptcy judges the power to force lenders to lower the mortgage interest rate or principal balance.

Under the terms of the agreement, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to prove that they tried to modify their mortgages.

The compromise legislation was expected to come to a vote in the House as early as Thursday.

Will the Housing Rescue Plan Work?

Will the housing plan offered by President Barack Obama this week be enough to overcome the housing downturn? Some big guns in the world of economics have doubts.

The plan seeks to stem foreclsoures by helping home owners who are still current on their mortgage but at risk of defaulting. (For more details: Read What's in the Foreclosure Plan)

"It's a positive step in the right direction," says economist Mark Zandi of Moody's Economy.com. "I think it will be much more successful than those that preceded it. I worry that it's not going to be successful fast enough."

Likewise, Dean Baker, a housing specialist with the Center for Economic and Policy Research, said: "I'm not impressed. There are some good things in there. I think giving servicers incentives is a good thing. But it's mostly money for banks, not money for home owners. … The banks still decide who gets into this, and that's been a problem all along."

Patrick Newport, an economist with IHS-Global Insight, is also skeptical. He pointed out that the number of people who are underwater on their mortgages has risen to 15 million, but the Obama initiative aims to help only 7 million to 9 million,

"Obama's plan is an ambitious one, more ambitious than analysts had been led to expect," he says. "Whether it will stop the bloodletting, however, time will tell.”

Source: Los Angeles Times, Maura Reynolds (02/19/2009)