It took a change in presidents for the federal bailout to start bailing out average Americans. That's the promise of the $275 billion package unveiled by President Barack Obama on Wednesday to help families hang on to their homes, stabilize real estate values and spur the housing industry.
Although the details won't be final until March 4 when the plan takes effect, the administration estimates it could help up to 9 million Americans either stave off foreclosure or refinance their mortgages.
The measures would use $75 billion from the $700 billion financial bailout to subsidize loan modifications to reduce monthly payments for distressed borrowers. The other $200 billion would be financial backing for Fannie Mae and Freddie Mac, the government-controlled lenders that own or guarantee loans for 30 million homeowners.
Mr. Obama's three-part plan would help about 4 million people who are in danger of losing their homes; give relief to homeowners who are keeping up with their payments despite high interest rates, but need help to refinance due to lack of equity; and raise the amount of credit available for new mortgages through Fannie Mae and Freddie Mac.
The aid to distressed borrowers would come partially from concessions made first by the lender to reduce a homeowner's payment to 38 percent of gross monthly income; the government's money would be used to cut the payment further, to as low as 31 percent of income.
Although this is the latest financial life-jacket to be thrown by the Obama administration, the Homeowner Stability Initiative will not save every troubled borrower. For instance, those who owe more than 105 percent of their home's value will not be eligible for refinancing under the plan.
This costly, complicated program is not perfect. Analysts will debate the details and inevitably find certain parts lacking (like the overly generous incentives to lenders, for example). But this multi-pronged, robust response is way overdue. Half a year after Washington began its historic rescue of large financial institutions, it's about time it threw a lifeline to the little guy.
First published on February 20, 2009