$50B Aimed at Stemming Foreclosures of Mortgage Loans
President Obama will be in Phoenix, Arizona tomorrow to announce the plan his administration hopes will boost the dilapidated housing market. It is expected that $50 billion of the current economic stimulus bill will be set aside as a housing relief plan. At the centerpiece of that plan will be stemming foreclosure rates on mortgage loans. An estimated 2.3 million homes were foreclosed this past year and many analysts predict that the number could reach as high as 10 million in the coming years, if the recession continues. Arizona was ranked number three in the nation for foreclosures. It is one of the areas in the country hardest hit by the recession with unemployment recorded at 6.9 percent in the last month of 2008. Announcing the housing relief plan in the state will speak directly to people struggling with the very issues this stimulus package is designed to help.
The President signed the new $787 billion economic stimulus bill today in Denver. At that press conference, he stated that the goals of the housing plan would target foreclosures on mortgage loans and declining home values to help responsible homeowners. The drop in values has affected homeowners in most areas of the country. One survey by Zillow demonstrated that of every six people who ownstheir homes, one is now in a situation of owning a home worth less than the mortgage on that home. Zillow estimates that the housing market lost over $3T the past year. Shrinking home values make it more difficult for homeowners to refinance mortgage loans and sell their properties. In addition, there is an inventory surplus of houses for sale currently, which makes for an ugly combination. It is expected that the housing plan will offer voluntary incentives to lending institutions to reduce payments on mortgage loans to as low as 31 percent of pretax income for qualified consumers. The plan will aim to reduce monthly payments on mortgage loans, rather than reduce the principal on properties. Making mortgages more affordable will also likely be another goal. That could be accomplished through opportunities to let homeowners hit by declining values undergo refinancing and through decreased interest rates for new mortgages.
There will no doubt be consumers who will not be able to afford their mortgage loans, in spite of the loan modifications. But the goal of the housing aid package is to help conscientious homeowners keep their homes, in an effort to help the battered housing market begin to recover. Only time will tell if the efforts will be enough to keep the housing sector afloat.
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