By Jason Simpkins
U.S. President Barack Obama today (Tuesday) signed into law one of the most ambitious and costly pieces of legislation in America's 200-plus year history. However, with the economy still reeling, Obama has no time to rest on his laurels and tomorrow he will introduce a new plan to stem the rising tide of foreclosures swamping the nation's housing market.
"We have begun the essential work of keeping the American dream alive in our time,"President Obama said before he signed the $787 billion stimulus at the Denver Museum of Nature and Science where he toured a solar panel installation project.
The stimulus bill contains roughly $300 billion in tax breaks for individuals and businesses, more than $250 billion in direct aid to states suffering budget shortfalls, and $200 billion in infrastructure spending.
The size of the bill and the speediness with which it was passed – signed into law within a month of Obama's inauguration – have drawn comparisons to the reformation undergone during the first 100 days of President Franklin Delano Roosevelt's term.
"No one's going to have 100 days like Franklin Roosevelt again, with 15 major pieces of legislation," Allan Lichtman, a political history professor at American University, told Bloomberg News. "But leaving aside that impossible comparison, Obama's accomplishments stack up very well."
Still, the massive bill, unprecedented in size, is just one part of the new administration's plan to pull the U.S. economy out of a tailspin.
"As important as it is, it's only the beginning of what I think all of you understand is going to be a long and difficult process of turning our economy around,"Obama told the Business Council – a group founded by President Roosevelt during the Great Depression – last week.
Obama will travel from Denver to Phoenix, Arizona, tomorrow where he is expected to outline a new foreclosure plan to help stabilize the housing market. No details have been made available but the plan is expected to cost between $50 billion and $100 billion.
The number of loans in foreclosure hit a new record of 2.3 million last year, more than double the volume in 2006. Foreclosure filings – default notices, auction sale notices, and bank repossessions – continued to soar in January, albeit at a slightly slower rate than last year. Filings were up 18% from January 2008, to 274,399. Filings were down 10% from December.
Obama's plan is to put pressure on lenders to reduce monthly payments for borrowers at risk of losing their houses, people familiar with the administration's thinking told the New York Times. That could include government subsidies for reducing a borrower's interest rate, which a lender would have to match with its own money.
Officials caution, though, that subsidies for lower interest rates would not help many troubled homeowners, because lenders will continue to view many of those borrowers as bad risks and refuse to restructure their loans.
Another tact would be to pass legislation that would broaden the power of bankruptcy judges to restructure mortgages and reduce a borrower's payments. However, the banking industry contends that if a judge can unilaterally change the terms at a later date, investors will simply stop financing mortgages.
Questions over the size and scope of the plan also abound.
"We are likely looking at a trillion dollars in mortgage losses before it's all over," Peter Morici, an economist at the University of Maryland, told CNN. "And putting $50 [billion] to $100 billion is not going to solve the problem."
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