President Barack Obama announced the much-awaited housing bailout plan, which is expected to bring relief to as many as nine million troubled homeowners across the US and help them refinance their mortgages and prevent foreclosures. The plan, which is estimated to cost as much as $275 billion, is a significant step towards providing long-term stability in the housing market.
The plan would assist homeowners who can pay high interest rates but are unable to refinance as well as those who are either delinquent in loan payment or are in danger of losing homes. Incentives are promised to those lenders who bring modifications in the terms of loans to make them suitable for defaulting borrowers. The administration has also set aside $200 billion for the mortgage giants Fannie Mae and Freddie Mac to increase the flow of credit in the housing finance market.
Mr. Obama is also in favor of giving bankruptcy judges the power to alter terms of mortgages in order to reduce the monthly payments and prevent foreclosures. The proposal has a strong backing by Democrats in Congress and is likely to become a law despite the resistance being put up by the banking industry.
The $75 billion program to support loan modifications and reduce monthly payment to 31 percent of a family's gross monthly income will provide benefit to an estimated four million homeowners who are on the brink of losing home because of foreclosure. The government would provide incentives, such as $1,000 upfront payment, and subsequent support to lenders for reducing borrowers' payments to 38 percent and then to 31 percent of their respective monthly income.