President Obama unveiled his plan for the housing market this morning. Here's a detailed article from Bloomberg about the proposal, but I'll also give you an abridged version. The plan is worth $275 billion and there are three main components:
$75 billion, mostly from the $700 billion bailout fund, will go to homeowners struggling to pay their mortgages. Fannie Mae and Freddie Mac will put in another $100 billion on mortgages, to help restructure some loans and increase new lending. The government might also chip in $100 billion to protect Fannie and Freddie against any losses.
Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower's income. The government will share the cost of cutting the rate further to 31 percent.
The President also says he'll support changing bankruptcy rules to allow judges to reduce mortgages to fair market value -- as long as borrowers pay their debts under a court ordered plan.
Here are some comments about the proposal:
HUD Secretary Shaun Donovan: A family with a conforming Fannie Mae or Freddie Mac mortgage will save an average of $2,300 annually under the program. We'll have as many as 6 million foreclosures in the next three years if this program isn't implemented.
Michael Cheah, portfolio manager at AIG SunAmerica in NJ: "This plan is good, but it is unnecessarily complicated. Every effort helps, but the question is effectiveness. I
think it could come with side effects, like people trying to game the system."
Andrew Bekoff, chief investment officer at LPB Capital LLC in Pennsylvania:
"The plan has a real shot to help. The combination of government action and additional funding Fannie and Freddie should help keep millions of Americans in their homes."