Secretary of Housing and Urban Development Shaun Donovan this morning defended the Obama administration housing bailout announced last week in Phoenix, saying that controls were in place so that speculators and others won't be able to unfairly take advantage of the plan.
"We have designed this plan to make sure that the folks who did take advantage of people -- whether it was lenders or speculators or flippers -- that they're not eligible for this plan," Donovan told host Bob Schieffer on CBS News' Face The Nation. "We're going to have a very strict program to make sure that people who participate are what they say they are. We're not going to benefit those who took advantage before."
Donovan said the plan would benefit more than just those homeowners who have their mortgages readjusted. Specifically, he pointed to up to $200 billion that will be funneled to backstop Fannie Mae and Freddie Mac which he says will help keep overall mortgage rates low.
The secretary credited actions by the Obama administration that have made mortgage rates "as low as we've had in a generation."
"We have to keep those mortgage rates low because anybody who has got good credit, who wants to go out and buy a new home or refinance, they benefit by having those low mortgage rates," he said.
The second part of the plan, Donovan said, helps people refinance who are "playing by the rules" but are also slightly "underwater" on their mortgages (where they owe more than the house is currently worth). And the third part is $75 billion directed to help modify loans for those who are "struggling the most," he said.
"We have millions of families across this country through no fault of their own that are in trouble on their mortgages," he said. "Let's remember that every time there's a foreclosure, a next-door neighbor loses value in their house too… by stopping foreclosures, this benefits everyone."
As for how many foreclosures may be forestalled by this plan, Donovan said the administration thinks the modification part would stop three to four million foreclosures and that four to five million could be helped by the changed refinancing rules.
Donovan also addressed the administration's push to Congress to allow bankruptcy judges to modify mortgages. He said that the administration is only pushing for that authority on existing mortgages so that it doesn't hurt the mortgage market even more.
"What we've proposed, and we're working with Congress on, is a modification for loans had that are in existence now -- the ones that have caused all the trouble," Donovan said. "We're not talking about applying this to loans going forward. And we think doing that means that it's not going to affect in any significant way mortgages in the future."
The secretary also stated that the administration sees bankruptcy as a "last resort."
"We don't think that bankruptcy court is the answer to the problem," he told Schieffer.
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