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Public, Bankers, Analysts Debate Merits of Obama’s Foreclosure Plan

Reaction in the banking world and among the public to President Barack Obama's plan to ease home foreclosures has proven mixed. Analysts debate the plan's merits and examine what the measure may mean for homeowners and lenders.

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  • JIM LEHRER:

    And to the global economy, take three, reaction in the U.S. to the president's home foreclosures plan. Judy Woodruff is in charge.

  • JUDY WOODRUFF:

    Two of the nation's largest banks, Wells Fargo and Bank of America, gave a partial thumbs-up to the housing rescue plan, announcing today that they would continue to hold off on any foreclosures into next month, when the plan is enacted.

  • U.S. PRESIDENT BARACK OBAMA:

    The home mortgage crisis, the financial crisis, and this broader economic crisis are all interconnected. We can't successfully address any one of them without addressing them all.

  • JUDY WOODRUFF:

    The president's plan, announced yesterday, is a sort of shock therapy for the deepening recession, aimed directly at the housing crisis. Almost 1 in 10 homeowners were late on mortgage payments last year. In the last three years, 3 million people lost their homes. And the administration said as many as 6 million homes could go into foreclosure unless immediate action was taken.

    All the while, home prices keep plummeting.

  • BARACK OBAMA:

    The plan I'm announcing focuses on rescuing families who've played by the rules and acted responsibly, by refinancing loans for millions of families in traditional mortgages who are underwater or close to it.

  • JUDY WOODRUFF:

    The key measures of the plan include $75 billion to keep 3 million to 4 million at-risk homeowners out of foreclosure. This would include cash incentives to lenders if they lower payments.

    The lender would agree to set payments at no more than 38 percent of a borrower's income. The government would then share the cost and lower the payments further, to 31 percent of income.

    Banking chiefs, like Jamie Dimon of JPMorgan Chase, reacted positively.

  • JAMIE DIMON, CEO, JPMorgan Chase:

    I think the plan is really elegantly done and really well designed. We think it will be a very successful program.

  • JUDY WOODRUFF:

    The plan also helps the 4 million to 5 million homeowners with little equity in their homes refinance to cheaper mortgages. But many of the estimated 14 million other people who are in worse shape, underwater, meaning they owe more than their home is worth, are left out of this plan.

    Russell Stearns of Washington state was underwater and drowning. He took a $300,000 loss, selling his home to avoid foreclosure.

  • RUSSELL STEARNS:

    It is a big mess. I don't see — I don't see a solution for it. I definitely don't see how throwing money at the problem is going to help.

  • JUDY WOODRUFF:

    Regardless, more money is coming. Fannie Mae and Freddie Mac will get an additional $200 billion, doubling the government's commitment to them to increase credit availability. That's got some in Congress upset, asking why Fannie and Freddie should be getting more taxpayer money.

    And some of Mr. Obama's plan will require congressional approval. He's seeking legislation that will allow bankruptcy judges to modify mortgages for owners in trouble.

    Many bankers say this housing rescue is incomplete and not broad enough, but FDIC Chairwoman Sheila Bair said the plan will have a big impact and soon.

    SHEILA BAIR, chairwoman, Federal Deposit Insurance Corporation: There will still be some borrowers who lose their homes to foreclosures. Some of that will be inevitable. But this should have a significant reduction in the foreclosure rate, bringing it more in line to historical levels, and decreasing unnecessary foreclosures, which are putting artificial downward pressure on home prices, which is hurting everybody.

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