Obama unveils $75bn homes rescue plan

US President Barack Obama today unveiled a $75bn (€59.7bn) package aimed at helping millions of struggling homeowners across America.

The plan will allow five million families to refinance their mortgage to a lower rate, while up to four million homeowners at risk of repossession could see monthly repayments fall to less than a third of their salary.

Announcing the initiative, Mr Obama said the current mortgage crisis, if left unchecked, risked “unravelling homeownership, the middle class and the American Dream itself”.

Today’s package is geared towards helping those that have seen house prices plummet at a time of worsening recession.

Millions have fallen into negative equity, and as such owe more than the value of their house, according to the White House.

Mr Obama said: “The plan I am announcing focuses on rescuing families who have played by the rules and acted responsibly”.

The package will allow between four million and five million homeowners refinance their mortgage to get a better deal through the Government-sponsored mortgage agencies Fannie Mae and Freddie Mac.

Until now, families that owed more than 80% of their home were excluded from refinancing their deals. That restriction will be removed under the scheme.

The White House believes that cheap refinancing of a home loan could reduce mortgage repayment by thousands of dollars a year for households.

Both Fannie Mae and Freddie Mac will also be strengthened under the scheme with increased funding from the Treasury to help boost confidence and stabilise the housing market.

In a bid to curb rising repossessions, the president unveiled a scheme which would bring down monthly repayments for those at risk.

According to the White House, households have seen the slice of monthly income that goes to paying off the mortgage rise to 40% or 50%.

Under the new initiative, lenders will be obliged to bring down interest rates so that no more than 38% of income is spent on mortgage costs. Money from the government would then be used to match further interest rate cuts, bringing the ratio down to 31%.

That rate will be locked in for five years to help struggling mortgage holders.

Unveiling the Homeowners Affordability and Stability Plan, President Obama took the opportunity to apportion blame for the current mortgage woes facing the country.

He said: “Our housing crisis was born of eroding home values, but also of the erosion of our common values.”

He pointed the finger at banks trading in risky mortgages, lenders who took advantage of homebuyers, speculators, inaction in Washington and people who knowingly borrowed too much to get on the housing ladder.

Mr Obama added: “All of of us must learn to live within our means again.”

The president said the plan would “give millions of families resigned to financial ruin a chance to rebuild.”

And in attempting to bring down the rate of foreclosure, it should shore up house prices across the country, he said.