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President Barack Obama’s much-anticipated plan to deal with the U.S. housing crisis aims to help as many as 9 million families avoid foreclosure on their homes, one of the root causes of the global financial meltdown.
The Obama plan will involve government subsidies to mortgage servicers and lenders to encourage them to lower payments for borrowers in distress.
The aim is to bring mortgage payments to a more affordable range of around 31 percent of borrowers’ incomes.
At the end of last year, just over 9 percent of all home loans in the United States were in arrears or already in foreclosure, the Mortgage Bankers Association has said.
Equity markets around the world surged on the Fannie Mae and Freddie Mac bailout as hopes rose that the U.S. plan to take control might put at least a temporary floor under troubled financial markets. Together, the two companies back about half of $12 trillion in mortgages in the U.S.”This is a baby step in the right direction,” William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts, said about the plan’s effect on housing and the economy.
Not everyone is convinced. “This euphoria might fade, because Fannie and Freddie are not the problem,” said Christopher Low , chief economist at FTN Financial.