Obama speeds rescue plan
With pressure growing for government action to stem foreclosures, the White House moved up to next week the unveiling of President Obama’s housing rescue plan, while major banks said they would freeze seizures of homes for at least three weeks pending the rollout of the initiative.
For months, Congress has been pressing the executive branch -- first the Bush administration, now its successor -- to come up with a program to curtail the growing wave of borrowers forced to give up their homes. On Tuesday, Treasury Secretary Timothy F. Geithner disappointed lawmakers as well as the stock market by saying the foreclosure plan would be delayed several weeks.
In response to that reaction, Obama is now scheduled to present the plan Wednesday in Phoenix.
“I think you’ll see the president take a big step forward in dealing with the crisis that faces 10,000 people every day,” White House spokesman Robert Gibbs told reporters.
The moratorium announcements by big banks also followed pressure from Congress this week. At a meeting Wednesday of the House Financial Services Committee in which lawmakers chastised banking leaders for their role in the economic crisis, panel Chairman Rep. Barney Frank (D-Mass.) asked the CEOs to freeze foreclosures until the administration’s mitigation effort was announced.
A number of the banks said Friday that they would honor Frank’s request, most of them pledging to wait three weeks, until March 6, to see how the Obama plan would affect them.
In a letter to Frank, JPMorgan Chase & Co. Chief Executive Jamie Dimon said his firm was ready to work with the administration on an “appropriate process” for handling troubled borrowers, including a standardized loan modification program.
Other large mortgage customer-service firms signing on to a moratorium included Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., as well as Fannie Mae and Freddie Mac, the mortgage-finance companies now controlled by the government.
The suspensions of foreclosures generally apply to single-family residences and small complexes of up to four units. Vacant homes are excluded.
All mortgage customer-service firms are likely to participate in the moratorium, said Guy Cecala, publisher of Inside Mortgage Finance Publications.
“No one would complain about delaying action for three weeks,” he said. But he was skeptical “that the administration can roll out any plans that will keep the vast majority of these folks out of foreclosure once the moratorium is lifted. That’s the big problem.”
Many economists and lawmakers concede that foreclosures can’t be avoided in every case but argue that unnecessary foreclosures are deepening the recession and taking a toll on the finances and morale of communities.
Administration officials say they are still working out details of the foreclosure plan.
A key dilemma facing policymakers is how to treat borrowers who owe far more on their mortgages than their homes are now worth.
So far, lenders have fiercely resisted any plan that would force them to write down principal or otherwise take losses. But there is a fear that borrowers will be reluctant to make loan payments on homes in which they have no equity.
“Most economists believe that reducing the principal would be the single most important way to reduce monthly payments” for creditworthy borrowers, said Andres Carbacho-Burgos, a housing economist with Moody’s Economy.com.
Many financial institutions have been reluctant to write down the principal on mortgages because doing so would make the banks’ balance sheets, which are already fragile, even more precarious.
The Federal Deposit Insurance Corp. has been promoting a “streamlined” mortgage refinancing proposal based on its experience in handling the portfolio of failed Pasadena-based mortgage giant IndyMac Bank last summer.
Speculation in Washington has suggested the administration may favor a standard refinancing plan in which mortgage payments could be set at 31% of the homeowner’s gross monthly income.
But that may not solve the problem if it doesn’t deal with a borrower’s total debt and other financial hardships, said Bert Ely, an independent banking consultant in Alexandria, Va.
“I’ve found with streamlined mortgage refinancings that they don’t deal with the larger problem,” Ely said.
Gibbs suggested that speculation this week in the stock market about the Obama foreclosure plan reflected the hopes of investors, not decisions by officials.
“Some things may come out that aren’t in the plan, as happened extensively with the financial stability package, based on somebody’s hope that it would be,” Gibbs said. “Be careful we don’t set an unreasonable series of expectations, based on leaks from God only knows where.”
In Phoenix, where Obama is scheduled to speak Wednesday, the housing market is among the hardest hit in the country, with prices plummeting 33% in the last 12 months, according to the S&P;/Case-Shiller index. That was the steepest decline of the 20 metropolitan areas in the survey.
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scott.reckard@latimes.com
