On February 18, during a visit to Arizona, President Obama announced his economic housing plan, expected to go into effect March 4.

He is offering a $75 billion stimulus package that some analysts say could help around nine million American home owners.

This plan includes three general sections:

  1. It helps the growing sector of homeowners who are dealing with high interest rates but don’t have enough equity in their homes to refinance.
  2. It helps the 14 million Americans who might lose their homes if they don’t acquire more affordable loans to lower their mortgage payments. This section offers lenders incentives for offering affordable loans, such as promising a significant upfront payment from the borrower.
  3. It increases the credit that is available from government-controlled mortgage giants Fannie Mae and Freddie Mac, who underwrite more than half of U.S. mortgages.

This plan is more expensive and more detailed than what people were expecting. It is currently backed up by consumer advocates and most of the financial industry.

Potential Positives:

  • The housing crisis has made a huge impact on the overall economic strain that our country is facing right now. By creating a specific plan to take care of specific problems, it will help our economy as a whole.
  • One foreclosure in a neighborhood is said to lower the worth of all the homes in that neighborhood by around nine percent. By decreasing foreclosure rates, it will help stabilize the housing market everywhere.
  • If the government doesn’t act now, six million families could lose their homes within the next three years. Action now will diminish this possibility.

However, some analysts and administrative officials are wary of the plan.

Potential Negatives:

  • The plan isn’t geared to help most homeowners who are “underwater,” who can make their mortgage payments but are paying higher prices than what their homes are worth. Therefore, the plan might only help about one million of the 14 million who need help.
  • It pays $75 billion to Fannie Mae and Freddie Mac, but only borrowers with loans from these major companies are helped. It leaves out the other half of borrowers who received loans from elsewhere and aren’t affected by these two companies.
  • President Obama says that it will only help those who made smart decisions and still suffered, but the lines are hazy on how the groups will be separated. If this plan really tackles the mass of foreclosures, it will unintentionally reward homeowners who took out loans and took on mortgages that they knew they couldn’t afford. It could also reward mortgage lenders who shouldn’t have financed mortgages that they knew people couldn’t afford.

If you have been affected by the housing crisis, let us know what you think about President Obama’s economic housing plan!