The following editorial appeared in the Kansas City Star on Friday, Feb. 20:

President Barack Obama’s plan for easing the foreclosure crisis is more ambitious than many had expected, but it is no panacea. Rather, it is an effort to simply slow the pace of foreclosures that are undermining property values and wrecking neighborhoods across the nation.

Obama’s program targets two main groups of borrowers:

• Homeowners who cannot refinance because they lack sufficient equity or owe more than their homes are worth.

• Borrowers facing foreclosure who could keep their homes if their loan terms were made more lenient.

The president’s plan doesn’t try to save every subprime borrower, nor should it.

In the case of those hoping to refinance, the plan applies to loans owned or backed by Fannie Mae and Freddie Mac.

The two federally sponsored mortgage giants could refinance mortgages even in cases where borrowers have less than 20 percent equity in their homes. Under current rules, that’s not possible.

For borrowers at risk of foreclosure, incentives will be offered to lenders to make the loans more affordable. Lenders would receive subsidies if they reduce mortgage payments to 38 percent of a borrower’s monthly income. Then Washington would provide matching allocations to bring the payment to as low as 31 percent of monthly income.

A total of $200 billion in extra financial backing will be provided to Fannie Mae and Freddie Mac to ensure that sufficient credit is available for refinancing. The plan’s final details are scheduled to be published March 4, when the program goes into effect.

Federal officials and lenders must work to make sure the program provides badly needed help for up to 9 million homeowners, as the Obama administration hopes.

For many homeowners whose incomes have dropped dramatically because of unemployment, the program likely will be out of reach; their monthly payments will be too high.

The plan says little about writing down the principal amounts of loans. And some borrowers will redefault even after going through the program.

Even so, J.P. Morgan Chase chief executive Jamie Dimon says his company may rewrite as many as 1 million mortgages – a favorable sign. Unlike the policies advanced by the Bush administration, the new program will allow homeowners who are not yet delinquent to qualify for loan modification.

The economy is not likely to return to an even keel until the housing sector stabilizes, and housing won’t fully stabilize until the jobless rate stops rising. Coupled with federal efforts to create and protect jobs, the program announced Wednesday is a step in the right direction – a reasonable attempt to deal with the downward spiral in housing.


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