White House closes in on housing plan

John W. Schoen Senior producer • Profile • E-mail

The White House said Friday a much-anticipated plan to help struggling homeowners will be announced by President Obama in a speech Wednesday in Arizona. In the interim, banking giants Citibank and J.P Morgan said they would halt new foreclosures on owner-occupied home loans through March 6.

The administration is working on a comprehensive plan to try to halt the ongoing wave of home foreclosures as part of its efforts to stabilize the financial system. The $50 billion package may include a program to buy up distressed mortgages at discount prices, subsidies to help struggling homeowners make their monthly payments and national standards for modifying home loans to more affordable terms.

The foreclosure prevention plan is part of a broader package of measures the administration is putting in place to help the staggering economy. Congress is moving toward final passage of the economic stimulus legislation. The Treasury Department has outlined in broad terms a plan to help stabilize the nation's financial sector.

Government-controlled mortgage finance companies Fannie Mae and Freddie Mac suspended foreclosure sales during the winter holidays and have halted evictions from foreclosed properties until next month. Earlier this week, the Office of Thrift Supervision urged the more than 800 thrift institutions nationwide — which hold roughly a half-trillion dollars in mortgages — to do the same.

Treasury Secretary Timothy Geithner, Housing and Urban Development Secretary Shaun Donovan and other Obama administration officials held a series of meetings this week Wednesday with top bankers, community groups and financial industry representatives to discuss the plan.

So far, government efforts to prevent foreclosures have focused on pressing the lending industry to work with at-risk homeowners voluntarily and provide them with more affordable payment terms. But the new proposal signals a shift to a more direct government approach.

The foreclosure prevention package is expected to contain a number of measures designed to work in concert. One proposal would draw on $50 billion in funds already approved for the financial bailout to buy up millions of mortgages at a discount.

Video   The foreclosure fight Feb. 13: A CNBC panel discusses the proposals to help stem rising foreclosures and what their consequences may be. CNBC

A $300,000 mortgage on a house now worth $200,000, for example, might be bought at a 30 percent discount. The homeowner then would be able to refinance the smaller mortgage with lower monthly payments. The government could then sell the loan back to investors, freeing money to buy more loans.

Of the roughly 10 million to 12 million households facing foreclosure over the next four years, the buyback plan could help between 4 million to 5 million to keep their homes, according to John Taylor, president of the National Community Reinvestment Coalition, who met this week with White House officials to discuss the plan.

White House officials have stressed the urgency of acting to shore up the nation’s banking system to avert a potential “catastrophe.”  But slowing the pace of foreclosures is essential to reducing the glut of homes on the market and resolving the crisis, according to Columbia University economics professor Christopher Mayer.

“We've got to deal with housing,” he said, ”because, look, if housing drops another 20 to 25 percent, I can promise you a lot more of these mortgages are going bad, and we're going to have a much bigger problem.”

Some 275,000 foreclosure filings were reported in January — or about one in 466 households — an 18 percent increase over January 2008, according to data released by RealtyTrac Thursday.

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