Obama unveils plan to tackle housing crisis

By Caren Bohan and Jeff Mason

MESA, Arizona (Reuters) - U.S. President Barack Obama pledged up to $275 billion on Wednesday to help stem a wave of home foreclosures, part of a broad effort using massive sums of government money to push the country out of recession.

Up to 9 million families would be given the chance to refinance their mortgages under the plan, administration officials said. He unveiled the plan in Arizona, a state hard hit by home foreclosures.

Obama, who a day earlier signed into law a landmark $787 billion economic stimulus package, said his housing plan would counter a cycle of mortgage defaults, plummeting home values and financial-market turmoil.

"A lost home often begins with a lost job. Many businesses have laid off workers for a lack of revenue and available capital. Credit has become scarce as the markets have been overwhelmed by the collapse of securities backed by failing mortgages," Obama said in a speech at a high school in Mesa.

"In the end, the home mortgage crisis, the financial crisis, and this broader economic crisis are interconnected," he added.

The plan goes much further than previous government efforts to address the foreclosure crisis. In a break from past programs, it would help borrowers who have not yet missed a monthly mortgage payment but are straining to keep up.

Still, financial markets reacted skeptically to the plan.

U.S. stock prices dipped after government data showed a drop in housing starts and permits to record lows, portending more weakness in the housing market despite Obama's plan.

The U.S. Federal Reserve cut its 2009 economic forecast sharply, saying the economy was likely to shrink by between 0.5 percent and 1.3 percent this year, weighed down by rising unemployment, frozen credit and the housing crisis.

FANNIE AND FREDDIE

The home foreclosure plan features a $75 billion fund made up of $50 billion from the $700 billion financial bailout fund approved last year and up to $25 billion from housing finance firms Fannie Mae and Freddie Mac.

It also draws on up to $200 billion authorized by last year's housing bill.

"All of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to continue to deepen," Obama said.

The plan will enlist Fannie Mae and Freddie Mac to do much of the heavy lifting.

Up to 5 million homeowners still making payments who cannot qualify for conventional refinancing because their home values have dropped could refinance through Fannie and Freddie.