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Obama: Aid 9 million homeowners Wide-ranging $75 billion plan will use government money to subsidize rates and insure servicers against falling home prices.

By Tami Luhby, CNNMoney.com senior writer, February 18, 2009

NEW YORK (CNNMoney.com)

President Obama unveiled a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, on the other hand, will make it easier homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who've already stopped paying.

While still voluntary, the program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans. The program would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors.

In his speech in Mesa, Ariz., a community hit hard by the mortgage meltdown, Obama laid out how foreclosures hits more than just the troubled borrower. Seeking to drum up support from those who are paying their debts, Obama said that the downturn in the housing market has claimed many companies and jobs. This, in turn, has hurt state tax revenues, which means less money for schools and other public services. And, he said, it has made it harder for everyone to get credit.

"In the end, all of us are paying a price for this home mortgage crisis," Obama said. "And all of us will pay an even steeper price if we allow this crisis to deepen -- a crisis which is unraveling homeownership, the middle class, and the American Dream itself. But if we act boldly and swiftly to arrest this downward spiral, every American will benefit."

Falling home prices

Obama is venturing into new territory to deal with a serious problem plaguing millions of Americans, even those who remain current on their loans. The mortgage meltdown has prompted a steep decline in prices, leaving many homeowners owing more than their house is worth. Nationwide, prices have fallen 17.5%, back to the level they were at in fall 2004, according to Zillow.com.

The administration, which is marketing its plan as help for "responsible homeowners," estimates it can help up to 5 million people.

The plan would help borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments. Lenders generally won't refinance people who have less than 20% equity in their homes.

But only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible. Also, the new mortgage, including refinancing costs, can't exceed 105% of the current market value of the property, excluding many of the hardest hit. So if your mortgage is $210,000, your property can't be worth less than $200,000.

The program, which begins March 4, allows borrowers to refinance into 15-year or 30-year fixed-rate mortgages at the current market rate, which hovers around 5%. This could benefit those whose mortgages carry higher rates or those in adjustable-rate or interest-only loans, groups of people who could see big rate spikes in the future. The plan, however, will not reduce the loan balance.

For instance, consider a family that took out a $207,000 mortgage at 6.5% on a home originally worth $260,000, but now valued at $221,000. If they refinance to a rate of 5.16%, they could reduce their annual payments by more than $2,300.

Homeowner stability initiative

The administration is also creating a $75 billion initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.

It estimates this program, dubbed the Homeowner Stability Initiative, would help up to 4 million people. It also argues that the measure helps stabilize home prices for all in the neighborhood, maintaining as much as $6,000 in value.

Many homeowners who pay their mortgages on time have railed against the government using taxpayer money to bail out borrowers they see as irresponsible. The administration is joining others in saying that foreclosures hurt everyone because they drag down home values.

"I also want to be very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans," Obama said. "It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone."

The effort would help borrowers -- both those current and delinquent -- who live in their homes lower their monthly payments for five years. The servicer would reduce interest rates so that the monthly obligation is no more than 38% of a borrower's income and then the government would kick in money to bring payments down to 31% of the homeowner's income.

Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

Obama's plan also addresses critics who say that some homeowners need extra help because they are carrying so much debt on top of their mortgages. Those with total debt -- including credit cards and auto loans -- equal to 55% of their monthly income must enter a debt counseling program to qualify for a modification.

In addition to providing incentives to servicers and investors, the administration will also reduce borrowers' loan balances by up to $1,000 a year for five years if they keep up with payments.

To entice servicers to modify mortgages in the wake of continuing home price declines, the administration and the Federal Deposit Insurance Corp. have developed a $10 billion insurance fund that will pay mortgage holders additional funds based on declines in a home price index.

The Treasury Department will also develop uniform guidelines for loan modifications, as well as require all financial institutions receiving government funds to participate in the program. Also, all federal agencies that own or guarantee loans will have to apply the guidelines where appropriate.

The Obama plan calls for legal changes to allow judges to modify mortgages during bankruptcy. Judges would be allowed to reduce the loan balance, a measure the financial industry fears because it would lower the value of the mortgage.

Community advocates say this step is required to aid homeowners who can't get help from their servicers. But, if Congress enacts this provision, they predict there will be fewer bankruptcies because servicers will be more diligent in helping homeowners outside of bankruptcy court.

Keeping mortgage rates low

The administration also plans to build on the Bush administration's use of mortgage financiers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), which were taken over by the federal government in September. The agencies buy loans and securities backed by mortgages from financial institutions, giving them more money to make new loans.

The plan calls for Treasury to strengthen the companies by injecting another $100 billion into each. And it will allow them to buy more mortgages by increasing the size of their portfolios to $900 billion, up from $850 billion.

And, the government will continue to keep prevailing mortgage rates low by buying mortgage-backed securities issued by the agencies. This effort expands a $500 billion purchase plan announced in November that prompted mortgage rates to fall nearly a percentage point.

Two hotels will open in city by 2010. Upscale W hotels promise to draw hip crowd to area.

By Michael Alexander, HB Independent, January 16, 2008

A major world luxury hotel brand is coming to Huntington Beach, Starwood Hotels & Resorts Worldwide announced this week.

The upscale W Hotels will open a resort in the upcoming waterfront Pacific City development owned by developer Makar Properties. The nine-story W Huntington Beach, which is scheduled to open in 2010, would feature 250 guest rooms and about 94 private condominiums, according to the hotel company.

The hotel`s cachet promises to bring a young, affluent clientele to Huntington Beach, said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the California hotel market. W hotels in California tend to be in hip neighborhoods like Hollywood or San Diego`s Gaslamp district, he said.

"I think that`s a great addition to the city," Reay said. "It`s something Huntington Beach does not have right now."

W Huntington Beach will be the fifth W in California and the 22nd overall.

"W continues to extend beyond the boundaries of everyday travel, offering a magical mix of sexy destinations and sublime design," said Ross Klein, president of Starwood`s Luxury Brands Group, in a statement. "From Huntington Beach to Hong Kong, Minneapolis to Milan, Hoboken to Hollywood, W Hotels is going global as the influential and innovative lifestyle authority."

W is not the only hip boutique hotel opening nearby in the next few years.

The 157-room Shorebreak Hotel is scheduled to open in the Strand project on the other side of downtown.

Joie de Vivre Hospitality of San Francisco, a big name in boutique hotels, will run that hotel.

Pacific City and its hotel are being built on Pacific Coast Highway between the Hyatt Regency Huntington Beach Resort and Spa, and the Hilton Waterfront Beach Resort, but Reay doesn`t think competition will hurt any of the players. For one thing, the boutiques cater to a different, more young and affluent, market.

Also, "when you have hotels like that opening up it creates a buzz," he said. "It really creates new business for the entire area."

Sites worth about $60M

But value of school property set much lower if city uses state`s Naylor Act. Appraisal takes trustees closer to decision.

By Michael Alexander, HB Independent, January 16, 2008

An appraiser told the Huntington Beach City School District board this week that its four closed school sites were worth about $60 million, but would have been worth more before a sub-prime mortgage meltdown sent the real estate market into decline.

"My conclusion is that it`s significantly lower than it would have been 12, 18, 24 months ago," said appraiser Rick Donahue of Integra Realty Resources. "Very clearly, land values have declined in the last six to 24 months. Will they come up again in the future? I believe so."

But an appraisal done in 2006 by California Financial Services had values much lower, board President Celia Jaffe said. She called the new numbers encouraging.

Donahue presented his findings on the value of the closed Gisler, Burke, LeBard and Kettler Elementary school sites to trustees Tuesday, which they had called a major step toward making a decision on the property. In addition to the basic values, he calculated their worth if the city used its rights under the state Naylor Act to buy 30% of any land up for sale at a quarter the price. That move would cut millions out of any site`s value.

His report also valued the market monthly rent of all four sites as $1.65 per square foot, based on size, the property would pull in $600,000 to about $850,000 per year using that figure, but warned that since few for-profit companies rent out closed schools, real rents would be significantly less and hard to predict.

"The likely users are nonprofit users such as churches," Donahue said. "Those are typically not measured as we would measure market rent. It comes down to negotiating what they can afford to pay."

The report moves the issues forward so trustees can begin discussing a course of action at a 5:30 p.m. study session Jan. 22, district Supt. Roberta DeLuca said.

"All of that`s going to be coming together in the next meeting," she said. "The question`s going to be, what are the next steps?"

Residents also had a chance to ask about those issues at two community meetings this week. The board held question-and-answer sessions at Dwyer and Sowers Middle Schools, where residents asked pointed questions on their rationale for possibly selling land. Board members responded that they were trying to be fiscally responsible for the district.

"Twenty years ago our parents were talking about selling our school sites," resident Sharon Augustine said Monday at the Sowers meeting. "What would have happened if the school district sold then? Would we even be having this meeting today? Where would those funds have gone, and what would you be doing today given that most of those funds would probably be gone?"

Later in the meeting, board member Cathy McGough said selling the land was one of the only ways she could see to pay for important work on schools that remain open, since current rents from two Christian private schools were being used to pay for loans for previous projects.

"We need a tremendous amount of money to be able to fix up a whole bunch of capital projects that we don`t have a source of income for," she said. "We have to fix up the sites for the existing students now."