President-elect Barack Obama wants the country to stop breaking foreclosure records.
In a letter to Congressional leaders released yesterday, a top economic adviser to Obama said the incoming administration plans to spend $50 billion to $100 billion on a “sweeping effort to address the foreclosure crisis.” Last year, more than 2.3 American homeowners went into foreclosure—an 81 percent increase compared to the previous year. It’s a serious problem for the overall economy as well as new-home builders, who are finding it nearly impossible to compete against the volume and lower prices of foreclosed homes currently for sale.
To address the issue, Obama and his advisors plan to “implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners, while also reforming our bankruptcy laws and strengthening existing housing initiatives like Hope for Homeowners,” according to the letter signed by Lawrence R. Summers, Obama’s director-designate to the National Economic Council.
Congress created the $300 billion Hope for Homeowners program last summer, as part of the housing rescue bill. But the effort, intended to assist 400,000 homeowners, has only received several hundred applications, due to the reluctance of lenders to participate and the complex financial relationships involved in most mortgages today.
Summers also noted that financial institutions receiving money from $700 billion bailout “will be required to implement mortgage foreclosure mitigation programs” in his letter. Many major banks have introduced some sort of effort to help troubled borrowers; Citigroup, for example, has been reaching out to loan holders and recently agreed to allow bankruptcy judges reduce principal amounts on mortgages for borrowers. Citi has received $45 billion thus far from the Emergency Economic Stabilization Act.
Alison Rice is senior editor, online, at BUILDER magazine.