President Obama announced a broad plan Wednesday to spend $75 billion to help homeowners pay mortgages and that could inject up to $200 billion more to Fannie Mae and Freddie Mac to stabilize the housing markets.
The plan, which could help as many as 9 million at-risk homeowners, would offer incentives to both owners and banks to rewrite loans so that they are manageable and so borrowers pay on time. It would also rewrite rules to make more homeowners eligible to refinance, taking advantage of the current low interest rates.
The long-awaited plan is part of Mr. Obama’s effort to set the economy back on track. On Tuesday, the president signed a $787 billion spending and tax cuts bill he said will create 3.5 million jobs over the next two years, which is the centerpiece of his efforts so far.
Mr. Obama, speaking in Phoenix, which has been hard-hit by the housing bust, said the housing crisis was a result of “the erosion of our common values — and in some case, common sense.” He pointed a finger at banks who pursued profits too blindly, lenders who took advantage of homebuyers, borrowers who sought loans too big for their means and politicians who failed to stop the cycle.
“Government has to take responsibility for setting rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place. And each of us as individuals has to take responsibility for their own actions,” Mr. Obama said. “That means all of us have to learn to live within our means again.”
Congressional Republicans are seeking assurances from Mr. Obama that the plan won’t aid those who obtained mortgages under false pretenses by lying about their income or assets. Sen. Charles E. Grassley, Iowa Republican, said such mortgages are between 30 percent and 70 percent of recent mortgages “may have been fraudulently obtained.”
Mr. Grassley wants the Treasury Department to require those looking to take advantage of the new plan to swear they did not commit fraud in obtaining a loan.
Echoing those concerns, House Republican leaders sent a letter to Mr. Obama Wednesday morning telling him that though only three Republicans — all senators — supported the $787 billion spending bill, their party still wants to cooperate with the president.
Lawmakers said Mr. Obama’s plan does not require legislation, but Democrats said they will continue moving forward with their own fixes to bankruptcy law and to offer new refinancing options for troubled homeowners.
The Obama administration said the refinancing incentives in his plan would help up to 5 million homeowners who were making payments on time but have seen their homes’ values decline so far they are unable to refinance and take advantage of low interest rates. Up to 4 million more homeowners would be helped by the incentives to banks and borrowers to rewrite troubled loans.
Those incentives include upfront and yearly payments to both banks and borrowers.
Mr. Obama said the plans will help stabilize home values even for those who are not in trouble, but who have seen values drop as for-sale signs and foreclosures build in their neighborhoods.