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Thursday Feb 19, 2009

US federal housing plan aims at heart of financial crisis

WASHINGTON, Feb 18, 2009 (AFP) - A massive US government stabilization plan for the battered housing market unveiled Wednesday takes aim at the epicenter of the global financial crisis with hundreds of billions of dollars.

The initiative is designed to stem a rising flood of foreclosures and help between seven and nine million homeowners restructure or refinance their mortgages to avoid losing their homes, the Treasury Department said.

"The plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs," it said in a statement.

The Homeowner Affordability and Stability Plan was to be formally unveiled by President Barack Obama later Wednesday in Arizona, one of the worst-hit states in the housing crisis.

As part of it, 75 billion dollars would be made available in a homeowner stability initiative to help up to four million homeowners at risk of foreclosure keep their homes.

"This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly," the Treasury said.

The bursting of the US real estate bubble in 2006 led to the subprime mortgage crisis that erupted in August 2007, sparking the global financial crisis that has brought world economic growth to a halt.

Even with mortgage rates at historic lows recently, the housing market has continued to slump as prospective buyers have been scared off by falling home prices, a deepening recession and rising unemployment.

The Treasury said the new government plan would also help up to five million "responsible" homeowners to refinance mortgages owned or guaranteed by Fannie Mae and Freddie Mac, the mortgage finance giants taken over by the government in September.

Treasury Secretary Timothy Geithner said Wednesday the Treasury was doubling its financial support to Fannie Mae and Freddie Mac to 200 billion dollars each, in an effort to stabilize the real estate sector.

"The Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market, to help maintain mortgage affordability, and to help keep interest rates low," Geithner said in a separate statement.

Geithner pointed out the new funds were already authorized by Congress for that purpose.

The Treasury secretary said the two ailing government-chartered but publicly owned companies "are critical to the functioning of the housing finance system in this country and play a key role in making mortgage rates affordable and maintaining the stability and liquidity of our mortgage market."

Fannie Mae and Freddie Mac financed or guaranteed almost three-quarters of new home loans in 2008, he noted.

The Obama administration's announcement of the housing stabilization plan coincided with another grim government report on the depressed real-estate sector.

The Commerce Department said housing starts and building permits plunged again in January to their lowest annual rates since records began 50 years ago.

hh-vs/jm - AFP

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