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In a speech replete with references to the “the American dream” and the “middle class,” Obama said the aim was to help families “who have played by the rules and acted responsibly.” Obama introduced the program in Mesa, Arizona, a state particularly hard-hit by the housing crisis. The overall size of Fannie’s and Freddie’s loan portfolios will be allowed to expand by $50 billion to $900 billion each, liabilities for which the federal government will presumably be responsible. The Treasury Department will purchase $200 billion in preferred stock from Fannie and Freddie, up from a previously arranged commitment of $100 billion made in September after the two lenders went into federal receivership. For the $75 billion to be made available to private lenders, the Troubled Asset Relief Program (TARP) will provide $50 billion and Fannie and Freddie the other $25 billion. The immediate cost of the program will be $275 billion. This would permit interest rate refinancing for families whose outstanding debt has neared, or slightly exceeded, their home’s value-but not for families whose home value has fallen significantly below the principal they owe on their loan. Mortgage lenders will also be paid annual service fees of $1,000 for each altered loan, among other enticements.Ī second part of the program pertains to loans financed by Fannie Mae and Freddie Mac, the federally sponsored mortgage giants which together finance the majority of US home loans. The federal government will give banks thousands of dollars in subsidies in return for interest rate reductions on certain loans, with the aim of bringing monthly payments down to an affordable level. US households have lost as much as $13 trillion in wealth from the housing and stock market crashes.ĭetails of HASP will be made public on March 4, but according to an outline released by the White House, it will depend on the voluntary participation of lenders, whom Obama hopes to induce into participation through generous incentives. In recent years, workers’ access to consumer credit, college tuition, and even major health procedures has been based on their ability to borrow against what were, until 2006, rising home values. Much of the wealth of working class and middle-class families is based on home ownership. The housing crisis has already impoverished significant sections of the population. At least 1 million homes have been foreclosed on since 2006, and predictions on foreclosures for the next four years range between 5.9 million and 8 million. Now the world economic crisis is rebounding back upon the American housing sector, accelerating foreclosures and driving down home prices. In 2007, the failure of the American subprime mortgage sector undermined the vastly inflated assets of the US banking system and that of much of Europe, sparking the crisis that spread from the financial industry to the broader US and global economy. The collapse of the US housing market triggered the implosion of the credit bubble built up over previous decades. It offers nothing to the hundreds of thousands of US households already foreclosed upon, and will not affect the vast majority of the approximately 12 million households already “underwater”-those who owe more on their loan than their house’s market value. The plan will not lower the crippling debt homeowners owe the banks. The Homeowner Affordability and Stability Plan (HASP) is designed to provide a modicum of relief to homeowners while protecting the interests of the major financial institutions, mortgage lenders and mortgage securities investors who bear primary responsibility for the collapse of the housing market. On Wednesday, President Barack Obama revealed portions of a plan that aims to stem the collapse of the US housing market.