Fresh on the heels of a $787 billion economic stimulus package, President Barack Obama is calling for an additional $75 billion in housing relief. His proposal is the first that actually addresses the millions of families in foreclosure around this country, rather than the banks and lenders who own the property and the mortgage. The auspicious plan hopes to aid up to nine million needy families and will combine with the over $200 billion being doled out to mortgage giants Fannie Mae and Freddie Mac.
President Obama revealed his plan during a speech at an Arizona high school. Arizona is not only the home state of the President's former rival, Senator John McCain, but it is also one of the most battered housing markets in the country. Since 2006 the average Arizona home has lost 43 percent of its nominal value. Other former boom states such as Florida and Michigan have been through similar downturns as well.
Thus far the government has organized nearly $2 trillion in spending programs to help save the economy. Nonetheless it has taken nearly two years to put together a program aimed at solving one of the root causes of this crisis: home foreclosure. Americans are always looking for a way to finance their consumption, and for the past decade they have been borrowing against the value of their homes.
Unfortunately a home has no real value. It is only worth what someone is willing to pay for it. As the economy began to stumble, home prices declined and the downfall was officially set in motion. Americans could no longer spend money that they had borrowed against their homes, because their homes no longer had extra value. People had refinanced against the inflated values of 2004 or 2005 and were now paying for it from 2006-2008. The mortgage and foreclosure crisis has gone largely unaddressed for over two years. Finally there is some hope for relief.
What we need now is a guarantee that this money will be used for what it is intended. Fannie Mae and Freddie Mac were given $200 billion to help deal with the mortgage crisis; they have done little more than cover their own balance sheet writedowns. The $700 billion bailout was originally discussed as a means to save families from foreclosure; all of the money has gone to shore up bank securities assets instead. The Federal Reserve put together various programs, worth over $1 trillion, to encourage lending and help families and businesses get access to the credit lines they had lost. That money has had almost no effect on lending, and most individuals and small businesses are completely frozen out.