Seeking to tackle "a crisis unlike any we've ever known," President Barack Obama unveiled an ambitious $75 billion plan Wednesday to keep as many as 9 million Americans from losing their homes to foreclosure.
Announcing the plan in Arizona - a state especially hard hit by the housing crunch - Mr. Obama said that turning around the battered economy requires stemming the continuing tide of foreclosures. The housing crisis that began last year set many other factors in motion and helped lead to the current, widening recession.
"In the end, all of us are paying a price for this home mortgage crisis," Mr. Obama said at a high school outside Phoenix. "And all of us will pay an even steeper price if we allow this crisis to deepen."
But while talking in broad strokes about the importance of the issue to the economy as a whole, the president took care not to miss the pain that the housing problems are causing in individual families
"The American Dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods," he said. "While this crisis is vast, it begins just one house and one family at a time."
More expensive than expected, Mr. Obama's plan aims to keep between 7 million and 9 million people from foreclosure. Of the nearly 52 million U.S. homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody's Economy.com.
Headlining Mr. Obama's plan is a $75 billion Homeowner Stability Initiative, which would provide a set of incentives to mortgage lenders in an effort to convince them to help up to 4 million borrowers on the verge of foreclosure. The goal: cut monthly mortgage payments to sustainable levels, defined as no more than 31 percent of a homeowners income. Funding would come from the $700 billion financial industry bailout passed by Congress last fall.
Another key component would specifically help those said to be "under water" - with dwellings whose market value have sunk below the principal still owed on the mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 million to 5 million families do just that - if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.
The White House says a typical homeowner with a $200,000 dollar mortgage would save about $2,300 a year, reports CBS News correspondent Chip Reid.
Some analysts say the plan will work only if the president's jobs plan works first.
"You can modify all the loans you want, you can try to refinance loans, but if you don't have money coming in through your pay, sort of weekly paycheck, you can't pay anything," said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University.
Analysts say Mr. Obama's plan will help many borrowers stay in their homes - but economist Mark Zandi told CBS News correspondent Anthony Mason that he estimates that nearly 4 million foreclosed homes will be sold over the next three years.
"The housing downturn, the mortgage crisis is only intensifying," Zandi said. "And I think even with this plan it'll get worse."
Almost immediately after Mr. Obama unveiled his initiative, lawmakers jumped to they say is ripe for fraud, reports CBS News producer Laura Strickler.
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House Republican leadership and Senator Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee, sent letters to administration officials asking for assurances that anti-fraud measures will be put in place to guarantee that taxpayer dollars are not used to re-do mortgages that were originally based on fraudulent documentation. Grassley notes that experts in mortgage lending say that anywhere from 30-70 percent of all mortgages inked in the last few years were based on fraudulent claims of assets or income.
Housing Secretary Shaun Donovan stressed that homeowners don't need to be delinquent in order to get help.
"This is necessary policy. It's smart economics. And it's just and fair," Treasury Secretary Timothy Geithner told reporters.
Asked why the cost had jumped to $75 billion from initial talk of a $50 billion effort, Geithner said, "We think that's necessary to make a program like this work."
And he said relief would be almost instantaneous, basically as soon as rules are published March 4. "You'll start to see the effects quite quickly", Geithner said.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said previous efforts had largely flopped. "We've not attacked the problem at the core," she told reporters. "We are woefully behind the curve."
The biggest players in the mortgage industry already had halted foreclosures pending Mr. Obama's announcement.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly," Mr. Obama said. "It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans."
He issued a warning as well: "All of us must learn to live within our means again."
He said the plan will not help those who took risky bets by buying homes to sell them, not live in them, or dishonest lenders who distorted facts for naive buyers, or buyers who signed on for loans they knew they could not afford.
"This plan will not save every home," Mr. Obama said.
In tandem with the foreclosure plan, the Treasury Department announced it would double the size of its lifeline to Fannie Mae and Freddie Mac, seeking to bolster confidence in the mortgage giants effectively taken over by the government last fall. The government said it would absorb up to $200 billion in losses at each company, by using money Congress set aside last year, and will continue purchasing mortgage-backed securities from them.
The Treasury said the increased support for Fannie Mae and Freddie Mac didn't reflect projected losses at the two companies. The two companies are currently projected to need a combined government subsidy of about $66 billion, well short of the new promise of up to $400 billion.
Asked about the doubling of the guarantees for Fannie and Freddie, Geithner said: "This is not a judgment about the expected losses ahead. It underscores commitment, and that is very important to help keep mortgage rates low." Geithner said most not all of the money would come the financial bailout fund.
The president's announcement came a day after hehe hopes will spark an economic turnaround and create or save 3.5 million jobs.
At the same time, the administration was grappling with the darkening prospects for the U.S. auto industry.
Even as Detroit carmakersto qualify for continued government loans, General Motors Corp. and Chrysler LLC asked for another $14 billion in bailout cash.