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Remarks by the President on the mortgage crisis
President Obama gave a speech today in Mesa, a Phoenix, Arizona suburb in which he disclosed his new Homeowner Affordability and Stability Plan.
The White House summarized four fundamental components of his plan and they include:
1 refinancing help for four to five million homeowners who receive their mortgages through Fannie Mae or Freddie Mac
2 new incentives for lenders to modify the terms of sub-prime loans at risk of default and foreclosure
3 steps to keep mortgage rates low for millions of middle class families looking to secure new mortgages
4 additional reforms designed to help families stay in their homes
Speaking in a high school gymnasium in Mesa, Arizona Obama said "I'm here today to talk about a crisis unlike we've ever known,"
"The American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods," the president warned the crowd. "It is a crisis that strikes at the heart of the middle class: the homes in which we invest our savings and build our lives, raise our families and plant roots in our communities."
"There will be a cost associated with this plan," the president said. "But by making these investments in foreclosure prevention today, we will save ourselves the costs of foreclosure tomorrow.
"We will help between 7 and 9 million families restructure or refinance their mortgages so they can avoid foreclosure," the president said. "And we are not just helping homeowners at risk of falling over the edge, we are preventing their neighbors from being pulled over that edge too."
Obama placed a price tag of "... $75 billion (on the) foreclosure prevention program aimed at arresting the problem that ignited the nation's spiraling economic problems."
Obama urged on the crowd: "If we go back to our roots, our core values, then I am confident we will overcome this crisis and once again secure that dream for ourselves and for generations to come."
Obama told the packed crowd that his plan is intended to help homeowners at risk of losing their homes relief. "The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it," Obama explained.
"In the end, all of us are paying a price for this home mortgage crisis,” Obama explained to the crowd. “And all of us will pay an even steeper price if we allow this crisis to deepen — a crisis which is unraveling homeownership, the middle class, and the American Dream itself.”
“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” the president announced to the people in the crowded gymnasium. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”
The New York Times analyzed the plan and broke it down into three interrelated parts:
First, the plan "... would help homeowners who continue to make loan payments on time but are paying high interest rates and would otherwise not be able to refinance because they do not have enough equity or their houses are worth less than they borrowed."
Second, the plan "... would assist people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners."
Third, the plan "... would try to assure that there is plenty of credit available for mortgages by giving $200 billion of additional financial backing to Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies."
Mr. Obama took full advantage of the large boisterous crowd when he engaged in a populist critique of profiteers and “lenders who knowingly took advantage of homebuyers.”
“It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell,” Obama pledged, adding, “And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.”
The Homeowner Affordability and Stability Plan will take effect on March 4th, and lets non-delinquent homeowners to participate, The New York Times noted: "when the administration publishes detailed rules explaining it. Most of the plan can be enacted by Mr. Obama though his executive powers, although part of it — including changing the bankruptcy laws to allow homeowners to seek changes to their mortgages through bankruptcy proceedings — will require legislation. Mr. Geithner said the administration was already in discussions with lawmakers on how to proceed."
"My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value -- as long as borrowers pay their debts under a court-ordered plan," Obama explained.
The New York Times explains: "Mr. Obama’s plan boils down to a handful of basic components that are aimed at two distinct groups of homeowners: an estimated three million to four million distressed homeowners who are in danger of foreclosure; and a potentially much larger number of people who are not in immediate distress but are paying rates higher than available to creditworthy borrowers now and who will probably be resentful about bailouts going to others.
"The effects of this crisis have also reverberated across the financial markets. When the housing market collapsed, so did the availability of credit on which our economy depends," the president warned. "As that credit has dried up, it has been harder for families to find affordable loans to purchase a car or pay tuition and harder for businesses to secure the capital they need to expand and create jobs."
President Obama's plan will of course be confronted by "fierce opposition from the financial services industry and Republicans. About 150 consumer bankruptcy lawyers descended on Capitol Hill last week to lobby for the measure."
The National Association of Consumer Bankruptcy Attorneys, Maureen Thompson said: "These attorneys see every day the real-world impact of the failure over the last 18 months of meaningful solutions from Washington."
"Credit Suisse has estimated that more than 8 million mortgages could fall into foreclosure during the next four years."
John McClain, deputy director of the Center for Regional Analysis at George Mason University which monitors the Washington, D.C. region indicates that "Foreclosures have hit a plateau in some markets, but could spike again as a second wave of risky loans adjust to higher payments starting in late 2009... What Obama does for helping the foreclosure situation is key to preventing that wave from getting here."
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