Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

February 18, 2009


Bloomberg - The Obama plan will use $75 billion, mostly from the $700 billion financial bailout fund, to match reductions lenders make in interest payments that lower borrowers' payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower's income, with government sharing the cost to further cut the rate to 31 percent.

Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower's mortgage balance, the government said. The program may help as many as 4 million borrowers, the administration said. The average borrower's home value could be stabilized against a price decline by up to $6,000.

Banks accepting U.S. help must adopt loan modification plans, the government said.
Companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 annually for three years when the borrower stays current, the government said. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan. The cash will be applied to reducing the principal balance of the loan, according to a White House fact sheet.

Mortgage servicers will get $500 and loan holders $1,500 to modify loans as an incentive for the industry to seek out borrowers at risk of falling behind on their payments.
The plan will help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie and Freddie, the president said. Treasury will buy as much as $200 billion of preferred stock in the two mortgage companies, twice as much as previously promised, he said.

Treasury also raised the limit on the size of Fannie and Freddie's retained mortgage portfolios by $50 billion, to $900 billion, allowed under the preferred stock purchase agreement included in the September federal takeover of the two mortgage- finance companies. . .

The multi-step plan to help homeowners with mortgages owned or guaranteed by Fannie and Freddie will apply to so-called conforming loans, which are limited to $625,500 in the most expensive real-estate markets and $417,000 everywhere else.

An administration official, speaking to reporters in Washington, said the Treasury's pledge of support for Fannie and Freddie is intended to build confidence that the government stands fully behind the two mortgage-finance companies. The official said the two aren't yet close to reaching the initial limit of $100 billion in government support.

The additional $200 billion in funding will be made under a foreclosure-prevention law Congress enacted in July, the administration said.

A family with a conforming Fannie Mae or Freddie Mac mortgage will save an average of $2,300 annually under the program, HUD Secretary Shaun Donovan said at the Mesa briefing. Donovan added that he expects as many as 6 million foreclosures in the next three years if this program isn't implemented.


Blogger Oct3 said...

I think there are valid arguments on both side about this government plan. Will it raise the budget deficit? Probably. Will it help? That’s a good question. I think economies go through cycles and this might be one of them. I read a good article on recessions and their history on


February 19, 2009 1:12 PM  

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