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President Obama's Foreclosure Prevention Plan; More Money for Automakers?; 'Nationalize' Banks?

Aired February 18, 2009 - 12:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

TONY HARRIS, CNN ANCHOR: And hello again, everyone. I'm Tony Harris in the CNN NEWSROOM.

And here are the headlines from CNN for this Wednesday, the 18th of February.

Construction of new homes fell through the floor in January. Builders are working at the slowest pace since record keeping began.

President Obama outlines his plan to bail out homeowners. He will devote billions to those edging toward foreclosure.

You will see the announcement live in minutes, right here in the CNN NEWSROOM.

Let's start with President Obama, about to announce an ambitious plan to help people in their homes and keep them in their homes and out of foreclosure. He is set to unveil the program in just a few minutes, and you will see that announcement live, right here in the NEWSROOM.

The announcement follows more evidence today of the trouble in the housing market. The Commerce Department says initial home construction fell to its lowest level on record in January. Housing starts plummeted to 466,000. That is much worse than economists predicted.

More now on President Obama's foreclosure prevention plan. How much will it cost, and who is it designed to help?

White House Correspondent Suzanne Malveaux traveling with the president in Mesa, Arizona.

Suzanne, great to see you again. If you would, preview the speech for us.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Sure, Tony.

We just got out of a briefing. This was with the treasury secretary, Tim Geithner, as well as the head of HUD and FDIC. And they all gave us a pretty good sense of what the president is going to lay out for the American people.

Essentially, this is a plan that went from some $50 billion to $75 billion to try to stem home foreclosures. We asked Geithner about that, why the increase? He says because he believes that is the amount of money that is necessary to keep folks in their homes.

Now, what are they talking about? Up to nine million people, they believe, that they'll be able to save, to put them back in their homes.

One of the things that the government is going to do is provide subsidies to mortgage companies so that they can actually lower the monthly payments. That is a big deal.

They're also going to create a program that allows homeowners to actually -- those who owe more than their home is worth, to refinance. That is something that is not an option for people now. That is something that the government wants to change.

They also are supporting legislation to change bankruptcy law. That allows judges essentially to change or alter the monthly payments. That is legislation they say they're going to be working with Congress, they support that, that they're going to be working that system, the process through that with lawmakers.

And finally, they're going to establish standards for the housing industry, Fannie Mae, Freddie Mac, to give homeowners a break. If, in fact, they're falling behind on their payments, to give them a little bit more time, perhaps a grace period, or to even adjust their mortgage rates.

These are the kinds of things that the government is going to be working with those mortgage companies. They say it's not a government program per se, but a government-run program. They're going to be working in concert with the banks, with the mortgage companies.

Clearly, this is something that they say is in concert with the economic stimulus package, which the president signed yesterday, as well as the banking -- the overall banking bailout program. So these are all things that they say are part of fixing the economy and that they're all related -- Tony.

HARRIS: Talk about a multi-pronged approach. A lot of details there. Well handled.

Our White House Correspondent Suzanne Malveaux for us.

Suzanne, appreciate it. Thank you.

You know, Phoenix is a poster city, really, for the real estate boom gone bust. Housing prices there have certainly fallen almost 50 percent since they topped out about three years ago.

In 2008, foreclosure proceedings were started against 117,000 properties in Arizona. That's a 203 percent increase over 2007. Only Nevada and Florida had more.

New home sales in Phoenix plunged 60 percent from 2007 to 2008. Phoenix lost 35,000 construction jobs last year and 23,000 others in professional and business services.

(BEGIN VIDEO CLIP)

MAYOR PHIL GORDON (D), PHOENIX: This is the problem, if we don't solve the housing crisis, it won't matter about jobs, about public safety, about any of the private sectors that have been receiving the bailouts, because people need a safe place to live and raise their children and go to school. And that has not stabilized at this moment.

(END VIDEO CLIP)

HARRIS: OK. Maybe you're struggling to meet the mortgage. Is there anything in the president's housing bailout plan to help you?

Personal Finance Editor Gerri Willis has been checking the fine print. She is back with us.

All right, Gerri. We've cooked up a couple of additional questions for you. You ready?

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: I'm ready. Let's go.

HARRIS: OK. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

WILLIS: Yes, this is what's being called underwater on your mortgage here.

HARRIS: Yes.

WILLIS: And yes, there is help. We've been poring over this plan all morning. Remember, we brought it to you first right here on CNN.

And what we learned is that eligible borrowers who stay current on their mortgages but have been unable to refinance because -- or lower their interest rates because their homes have decreased in value, they now have the opportunity to refinance into a 30-year, 15- year fixed rate loan. Remember, we talked about adjustable rate mortgages. This would be a fixed-rate loan, much easier to deal with. Through the programs Fannie Mae and Freddie Mac, it will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage-backed securities.

So there's help out there.

HARRIS: You tell us all the time the devil's in the details.

WILLIS: Right.

HARRIS: Let's get to some of the details. What are the interest rates and other terms of this refinance offer, Gerri?

WILLIS: Well, loans that are refinanced under the plan will have a 30 or 15-year term with a fixed interest rate, as I just said.

HARRIS: Yes.

WILLIS: And that rate will be based on market rates, in effect, at the time of the refinance. Now, the lender will add on points and fees, interest rates may vary across lenders. And over time, as markets rates change -- you know how they change -- the refinance loans will have no prepayment penalties. Remember those?

HARRIS: Oh yes.

WILLIS: No balloons, no -- so there's -- the devil is in the details. But on these loans, they will be much more streamlined.

HARRIS: All right. And to really bottom-line this, your bottom line, how do I apply for a modification under the Homeowner Affordability and Stability Plan to be announced here?

WILLIS: Well, you know, the government is saying, hey, you don't have it do anything right now. This isn't going to take place until March 4th. But I really think you need to start getting your ducks in a row.

You need to start getting all your loan docs together, proof of your income, proof that you're paying your credit cards on time. All of that, so you have it ready to go.

And get in touch with your lenner or your servicer. Call a HUD- approved housing counselor. Get the ball rolling, because I think there is going to be a really long line for this when this does happen.

HARRIS: Yes.

WILLIS: There's going to be a lot of clamoring for help. You want to make sure you've got the attention of the people you need to make it happen.

HARRIS: Awesome. Great advice, great answers to some difficult questions, at least the questions that people have right now as we get this plan being unveiled in just moments.

Gerri, appreciate it. Thank you.

WILLIS: My pleasure.

HARRIS: Let's see if we can -- do we still have that shot of the presidential motorcade arriving at Dobson High School? OK. There we are. So the president just moments away.

You know the foreclosure prevention plan is almost ready to roll here. The president in just moments at Dobson High School. That's in Mesa, Arizona. Live coverage of his remarks coming up for you in the NEWSROOM.

You know, the road to recovery for GM and Chrysler could be paved with billions more in taxpayer dollars. The struggling automakers have unveiled their plans for turning the companies around. More details now from CNN's Joe Johns.

(BEGIN VIDEOTAPE)

JOE JOHNS, CNN SENIOR CORRESPONDENT (voice-over): Perhaps the most memorable thing that GM and Chrysler said was the price tag. They said they need $21 billion more of your money just to keep going. Chrysler said it needs $5 billion more. GM said it needs $16 billion more.

RICK WAGONER, CHAIRMAN & CEO, GENERAL MOTORS: Our primary efforts continue to be on transforming our business and executing GM's viability plan outside of bankruptcy court.

JOHNS: And bankruptcy, the automakers say, would cost the government and taxpayers more than what they're asking for to stay afloat.

WAGONER: Bankruptcy would be a highly risky and very costly process.

JOHNS: They say they will be more efficient, but that means wiping out $50,000 jobs and cutting back sharply on the number and kinds of cars they produce.

JIM PRESS, VICE CHAIRMAN, CHRYSLER: What we're going to do is, the Aspen and the Durango will not restart production. And the third model is the P.T. Cruiser.

JOHNS: Economist Peter Morici says GM and Chrysler are now saying the right things; they're just not saying enough.

PETER MORICI, ECONOMIST, UNIVERSITY OF MARYLAND: They're quite realistic about the number of brands they will need, the capacity they're going to require, and the size of the market going forward. They have to tell us more about the labor agreement. How are they going to get their labor costs in line with Toyota, Nissan, and Honda, operating right here in the United States?

JOHNS (on camera): Cutting the cost of their work force is the key to the plan. Both companies have offered buyouts to all their hourly workers.

(voice-over): The automakers and the United Auto Workers Union say they have reached an understanding, but neither will say what the deal is, because the union members haven't had their vote on it yet.

MORICI: It's time that we get a plain stating of what the terms of the labor agreements are, so that the American taxpayer can make an adequate evaluation.

JOHNS: Secrecy over the labor deal, Morici says, just isn't acceptable when it's taxpayers' money on the line.

Joe Johns, CNN, Washington.

(END VIDEOTAPE)

HARRIS: OK. And once again, we are just moments away from the president outlining his plan to help mitigate foreclosures and to help people who are being responsible with their mortgages stay in their homes.

This is Dobson High School in Mesa, Arizona. When the president enters the room and begins his remarks, we will of course take you there.

You're in the CNN NEWSROOM.

(COMMERCIAL BREAK)

HARRIS: You know, moments from now, President Obama will announce his plan to tackle the foreclosure crisis. Who gets a piece of that pie, anyway?

Our Kitty Pilgrim has a preview.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice over): President Obama will announce his housing plan in Mesa, Arizona, where housing prices are down 35 percent in the last year.

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: We're going to have to help homeowners, not just banks, but homeowners as well.

PILGRIM: The plan is expected to use $50 billion of the remaining $350 billion in TARP funds to subsidize mortgages for troubled homeowners. It will give homeowners an eligibility test to see if they can afford their home.

JOHN TAYLOR, NATL. COMM. REINVESTMENT COALITION: Identify those loans, find out who's still working and then modify those loans so that the people who are still working can continue paying on a mortgage.

PILGRIM: The widely expected proposal potentially would set monthly mortgage payments to 31 percent of pre-tax income.

JAY BUTLER, REALTY STUDIES, ASU: The basic idea as we've seen that the monthly payment will be taken down to some percentage of income, but we also need to look at other things, the value of the home itself. They still have a home that's probably well under the debt they have on it.

PILGRIM: The still unanswered question is, will the principle amount of the mortgage be reduced to reflect market conditions?

AUGUSTINE FAUSCHER, MOODYSECONOMY.COM: In exchange for reducing the payment that that -- that the homeowner owes on the house, that the banks would get some money from the federal government, although probably not enough to make up for their losses. PILGRIM: Last week several large banks, Citigroup, JPMorgan Chase and Bank of America, promised to halt foreclosures for at least three weeks in anticipation of the Obama mortgage plan.

Past government plans have only given superficial relief. An existing Fannie Mae and Freddie Mac plan put payments at 38 percent of income. A formerly announced FDIC plan streamlines mortgages with reduction in interest but not of principle. And another program, Hope for Homeowners, put the burden on borrowers to refinance at relatively high cost.

Kitty Pilgrim, CNN.

(END VIDEOTAPE)

HARRIS: Should the U.S. nationalize our banks? Would that help resolve the financial crisis? That's what the former chairman of the Federal Reserve is at least suggesting.

Our Josh Levs is here to tell us about what that idea might mean.

I've been waiting for this explainer all morning long.

Good to see you, Josh.

JOSH LEVS, CNN CORRESPONDENT: Hey, good to see you, too.

You know, this remark's got people all over the world talking.

HARRIS: Yes.

LEVS: I actually pulled -- just did a quick news Google search just so you can see. I mean, there's so much about this stemming from this one quote from Alan Greenspan.

Here's what he said. We have a graphic.

He said -- he told "The Financial Times," "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring. I understand that once in a hundred years this is what you do."

And I'll tell you, Tony, that remark was especially striking from him. "The Financial Times" pointed out that for decades, Greenspan was regarded as -- they called the high priest of laissez-faire capitalism, which basically means the government does not get involved.

I will tell you this, too, at the top. I looked, and I found that President Obama was actually asked about this recently. This is what he said about it to ABC.

(BEGIN VIDEO CLIP)

OBAMA: The problems in terms of managing and overseeing anything of that scale I think would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country, and we want to retain a strong sense of private capital fulfilling the core investment needs of this country.

(END VIDEO CLIP)

LEVS: There's no sign that we're going to be moving in that direction anytime soon. But there is talk about it on Capitol Hill. I mean, discussion clearly going on there.

HARRIS: What would it mean exactly, Josh?

LEVS: Yes. Let's put it this way -- you know, I love this very simple definition that we have for you in a graphic.

HARRIS: Yes, please.

LEVS: Really simple definition. It boils down to this -- "to put under state control or ownership." That's from WordNet. And let's look at that for a second, because that's the key here.

You know, the U.S. has already been giving money to a lot of major banks, and these banks have already taken on some responsibility to the public. They're accountable to the government now.

The line that would be crossed would be officially saying that the government actually runs the banks.

HARRIS: Yes.

LEVS: Not that they're run by private people with some accountability, but that the government actually runs them, owns them, controls them. That would be the line that we would be crossing if we were to nationalize.

Obviously a very controversial idea. But you know what, Tony? It's a historic financial crisis. We can't predict everything that will happen.

HARRIS: We certainly can't.

All right, Josh. Thank you. Great explainer. Love that we -- wow, that we do that.

(WEATHER REPORT)

HARRIS: All right. Let's -- a live picture once again from Mesa, Arizona, and Dobson High School. The president any moment now will take that stage to outline his plan to help responsible homeowners afford their mortgage payments. The total cost on it, somewhere in the neighborhood of $75 billion.

We're following it for you. We'll bring you the president's remarks live in just a moment.

You're in the CNN NEWSROOM.

(COMMERCIAL BREAK)

HARRIS: Stuck in Guantanamo. Seventeen Muslim detainees due for release from Guantanamo's detention center will stay there a while longer.

A federal appeals court today overturned a ruling that would have brought them to the United States. So now the government will have to figure out what to do with them. The U.S. is reluctant to send the men home to China for fear they will be tortured.

A change of course -- oh, is this President Obama in the room? OK.

President Obama is in the room at the Dobson High School in Mesa, Arizona.

He is at the microphone, so let's take you there live.

(APPLAUSE)

OBAMA: Thank you. Thank you. Thank you.

Thank you very much. Thank you.

Please, everybody have a seat. Thank you.

Well, it is good to be back in Arizona.

(APPLAUSE)

Thank you. Are you excited?

(APPLAUSE)

Thank you. Thank you. Thank you.

Thank you. And thank you for arranging for such a beautiful day.

I want to stick around, but I've got to go back to work. But it is wonderful to be here. And to all of you, I know that attending these kinds of events, oftentimes you have to wait in line, and there's all kind of stuff going on, and so -- but I appreciate you being here very much.

And to all the officials here at the school, the principal and the student body, everybody who helped make this possible, thank you so much to all of you.

(APPLAUSE)

I'm here today to talk about a crisis unlike we've ever known, but one that you know very well here in Mesa and throughout the valley. In Phoenix and its surrounding suburbs, the American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy, but also the stability of families and neighborhoods. It's a crisis that strikes at the heart of the middle class, the homes in which we invest our savings and build our lives, raise our families, and plant roots in our communities.

So many Americans have shared with me their personal experiences of this crisis. Many have written letters or e-mails, or shared their stories with me at rallies and long rope lines. Their hardship and heartbreak are a reminder that while this crisis is vast, it begins just one house and one family at a time.

It begins with the young family maybe in Mesa or Glendale or Tempe, or just as likely in a suburban area of Las Vegas or Cleveland or Miami. They save up, they search, they choose a home that feels like the perfect place to start a life. They secure a fixed-rate mortgage at a reasonable rate, and they make a down payment, and they make their mortgage payments each month.

They are as responsible as anyone could ask them to be, but then they learn that acting responsibly often isn't enough to escape this crisis. Perhaps somebody loses a job in the latest round of layoffs, one of more than 3.5 million jobs lost since this recession began. Or maybe a child gets sick or a spouse has his or her hours cut.

In the past, if you found yourself in a situation like this, you could have sold your home and bought a smaller one, with more affordable payments, or you could have refinanced your home at a lower rate. But today, home values have fallen so sharply, that even if you make a large down payment, the current value of your mortgage may still be higher than the current value of your house. So no bank will return your calls. And no sale will return your investment.

You can't afford to leave, you can't afford to stay. So you start cutting back on luxuries. Then you start cutting back on necessities.

You spend down your savings to keep up with your payments. And then you open the retirement fund. And then you use the credit cards.

And when you've gone through everything you have and done everything you can, you have no choice but to default on your loan. And so your home joins the nearly six million others in foreclosure or at risk of foreclosure across the country, including roughly 150,000 right here in Arizona. But the foreclosures which are uprooting families and upending lives across America are only part of the housing crisis, for while there are millions of families who face foreclosure, there are millions more who are in no danger of losing their homes, but who have still seen their dreams in danger.

They're the families who see the "For Sale" signs lining the streets, who see neighbors leave, and homes standing vacant, and lawns slowly turning brown. They see their own homes, their single-largest asset, plummeting in value.

One study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as nine percent. Home prices in cities across the country have fallen by more than 25 percent since 2006, and in Phoenix they've fallen by 43 percent.

Even if your neighbor hasn't been hit by foreclosures, you're likely feeling the effects of this crisis in other ways. Companies in your community that depend on the housing market. Construction companies and home furnishing stores and painters and landscapers, they're all cutting back and laying people off. The number of residential construction jobs has fallen by more than a quarter million since mid 2006.

As businesses lose revenue and people lose income, the tax base shrinks, which means less money for schools, and police, and fire departments. And on top of this, the costs to local government associated with a single foreclosure can be as high as $20,000.

The effects of this crisis have also reverberated across the financial markets. When the housing markets collapsed, so did the availability of credit on which our economy depends. And as that credit has dried up, it's been harder for families to find affordable loans to purchase a car or pay tuition, and harder for businesses to secure the capital they need to expand and create jobs.

In the end, all of us are paying are 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. A crisis which is unraveling home ownership, the middle class, and the American dream itself. But, if we act boldly and swiftly to arrest this downward spiral, then every American will benefit, and that's what I want to talk about today.

The plan I'm announcing focuses on rescuing families who played by the rules and acted responsibly. By refinancing loans for millions of families in traditional mortgages who are under water or close to it, by modifying loans for families stuck in subprime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune, and by taking broader steps to keep mortgage rates low so that families can secure loan with affordable monthly payments.

At the same time, this plan must be viewed in a larger context. 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 markets have been overwhelmed by the collapse of securities backed by failing mortgages. In the end, the home mortgage crisis, the financial crisis, and this broader economic crisis are all interconnected. We can't successfully address any one of them without addressing them all.

So yesterday, in Denver, I signed into law the American Recovery and Reinvestment Act which will create or save -- the act will create or save 3.5 million jobs over the next two years, including 70,000 right here in Arizona. Right here. Doing the work America needs done.

We're also going to work to stabilize, repair and reform our financial system to get credit flowing again to families and businesses. And we will pursue the housing plan I'm outlining today.

And through this plan, we will help between 7 million and 9 million families restructure or refinance their mortgages so they can afford -- avoid foreclosure. We're not just helping homeowners at risk of falling over the edge, we're preventing their neighbors from being pulled over that edge, too, as defaults in foreclosures contribute to sinking home values and failing local businesses and lost jobs.

But I 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. It will not help speculators -- it will not help speculators who took risky bets on a rising market and bought homes, not to live in, but to sell.

It will not help dishonest lenders who acted irresponsibly, distorting the facts -- distorting the facts and dismissing the fine print at the expense of buyers who didn't know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.

So I just want to make this clear. This plan will not save every home. But it will give millions of families resigned to financial ruin a chance to rebuild. It will prevent the worst consequences of this crisis from wrecking even greater havoc on the economy. And by bringing down the foreclosure rates, it will help to shore up housing prices for everybody. According to estimates by the Treasury Department, this plan could stop the slide in home prices due to neighboring foreclosures by up to $6,000 per home.

So here's how my plan works. First, we will make it possible for an estimated 4 million to 5 million currently ineligible homeowners who receive their mortgages through Fannie Mae or Freddie Mac to refinance their mortgages at a lower rate. Today, as a result of declining home values, millions of families are what's called underwater, which simply means that they owe more on their mortgages than their homes are currently worth. These families are unable to sell their homes, but they're also unable to refinance them. So in the event of a job loss or another emergency, their options are limited.

Also right now, Fannie Mae and Freddie Mac, the institutions that guarantee home loans for millions of middle class families, are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home's worth. So families who are under water, or close to being underwater, can't turn to these lending institutions for help. My plan changes that by removing this restriction on Fannie and Freddie so they can refinance mortgages they already own or guarantee.

And what this will do is it will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero. While Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.

So I also want to point out that millions of other households could benefit from historically low interest rates if they refinance, though many don't know that this opportunity is available to them. Meaning some of you. An opportunity that could save your families hundreds of dollars each month. And the efforts we are taking to stabilize mortgage markets will help you, borrowers, secure more affordable terms, too.

The second thing we're going to do under this plan is we will create new incentives so that lenders work with borrowers to modify the terms of subprime loans at risk of default and foreclosure. Subprime loans, loans with high rates and complex terms that often conceal their costs, make up only 12 percent of all mortgages, but account for roughly half of all foreclosures. Right now, when families with these mortgages seek to modify a loan to avoid this fate, they often find themselves navigating a maze of rules and regulations but they rarely find answers. Some subprime lenders are willing to renegotiate, but many aren't. And your ability to restructure your loan depends on where you live, the company that owns or manages your loan, or even the agent who happens to answer the phone on the day that you call.

So here's what my plan does. It establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, from taxpayers, and to modify home mortgages will have to do so according to these guidelines which will be in place two weeks from today.

Here's what this means. If lenders and home buyers work together and the lender agrees to offer rates that the borrower can afford, then we'll make up part of the gap between what the old payments were and what the new payments will be. Under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrowers income. And this will enable as many as 3 million to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure. So this part of the plan will require both buyers and lenders to step up and do their part, to take on some responsibility. Lenders will need to lower interest rates and share in the cost of reducing monthly payments in order to prevent another wave of foreclosures. Borrowers will be required to make payments on time in return for this opportunity to reduce those payments.

And I also want to be clear that there will be a cost associated with this plan. But by making these investments in foreclosure prevention today, we will save ourselves the costs of foreclosure tomorrow. Costs that are borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole. Given the magnitude of these crises, it is a price well worth paying.

There's a third part of the plan. We will take major steps to keep mortgage rates low for millions of middle class families looking to secure new mortgages. Today, most new home loans are backed by Fannie Mae and Freddie Mac, which guarantee loans and set standards to keep mortgage rates low and to keep mortgage financing available and predictable for middle class families.

Now this function is profoundly important, especially now as we grapple with the crisis that would only worsen if we were to allow further disruptions in our mortgage markets. Therefore, using the funds already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities so that there is stability and liquidity in the marketplace. Through its existing authority, Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down.

We're also going to work with Fannie and Freddie on other strategies to bolster the mortgage market, like working with state housing financing agencies to increase their liquidity. And as we seek to ensure that these institutions continue to perform what is a vital function on behalf of middle class families, we also need to maintain transparency and strong oversight so that they do so in responsible and effective ways.

Fourth, we will pursue a wide range of reforms designed to help families stay in their homes and avoid foreclosures. My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value, as long as borrowers pay their debt under court-ordered plans.

I just want everybody to understand, that's the role for investors who own two, three and four homes, so it should be the rule for folks who just own one home as an alternative to foreclosure.

In addition, as part of the recovery plan I signed into law yesterday, we are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to limit the effects of foreclosures. Communities have shown a lot of initiative taking responsibility for this crisis when many others have not. And supporting these neighborhood efforts is exactly what we should be doing.

So taken together, the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American dream. But we also have to acknowledge the limits of this plan. Our housing crisis was borne of eroding home values, but it was also an erosion of our common values, and, in some case, common sense. It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true. By lenders who knowingly took advantage of home buyers. By home buyers who knowingly borrowed too much from lenders. By speculators who gambled on ever-rising price. And by leaders in our nation's capital who failed to act amidst a deepening crisis.

So solving this crisis will require more than resources. It will require all of us to step back and take responsibility. Government has to take responsibility for setting rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place. And each of us, as individuals, has to take responsibility for their own actions. That means all of us have to learn to live within our means again and not assume that -- and not assume that housing prices are going to go up 20 percent, 30 percent, 40 percent every year.

Now those core values of common sense and responsibility, those are the values that have defined this nation. Those are the values that have given substance to our faith in the American dream. Those are the values we have to restore now at this defining moment. It will not be easy, but if we move forward with purpose and resolve, with a deepened appreciation of how fundamental the American dream is and how fragile it can be when we fail to live up to our collective responsibilities, if we go back to our roots, our core values, I am absolutely confident we will overcome this crisis and, once again, secure that dream, not just for ourselves, but for generations to come.

Thank you. God bless you. God bless the United States of America. Thank you.

TONY HARRIS, CNN ANCHOR: That's the president. The president in Mesa, Arizona, at Dobson High School, outlining his plan to help responsible homeowners afford their mortgage payments right now. And, boy, there was a lot there to sort of work through. It seems so many areas of the government, the FDIC, Fannie and Freddie, Treasury, the Federal Reserve, will all be called upon to play a role in helping to mitigate foreclosures here and to get a handle on the housing crisis.

Our White House correspondent Suzanne Malveaux is in Mesa, Arizona. And our personal finance editor Gerri Willis is in New York.

And, Suzanne, let's start with you.

Boy, you were given a pretty detailed preview of this by the Treasury Secretary Tim Geithner. A lot to work over here.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Certainly is, Tony, a lot to digest when you look at the role of lenders and also, of course, homeowners.

But one of the things that really struck me here is that the president emphasized -- and there was some criticism even before he introduced his housing plan -- whether or not people who were guilty of bad behavior would be rewarded. Whether it's the bank. Whether it's those who have been speculating. Whether it's those who have been really going kind of beyond their means.

And he addressed that issue saying that this is really a program that is targeted for people who have fallen on hard times, who've played by the rules and who essentially deserve this federal government -- deserves this assistance. That this is not the kind of program that's going to reward banks for bad behavior, mortgage companies or even homeowners.

And you heard him tie that into American values and the American dream. That is something that he has also talked about with his economic stimulus package, when he's talked about bailing out the banks, that it's all about fulfilling this American dream and tapping into what he believes is really the better nature of everyone. And that is something that you heard on the campaign. It's one of his selling points for this huge economic stimulus and his overall reaching policies when it comes to the housing crisis, the credit crisis, as well as the banking crisis.

Tony.

HARRIS: Yes, you're so right about that. I made a couple of notes on that, Suzanne. No money to speculators who bought homes to sell. No money to people who bought homes they knew they couldn't afford. And no help to lenders who took advantage of homeowners. As you mentioned, a lot to go through there.

Suzanne Malveaux in Mesa, Arizona, traveling with the president.

Suzanne, appreciate it. Thank you.

And let's bring in our personal finance editor now, Gerri Willis.

And, Gerri, let me start with you. General question -- what did you hear there?

GERRI WILLIS, CNN CORRESPONDENT: Well, I thought it was fascinating. And the thing that's easy to miss here, and I think the thing that's sort of below the radar, the federal government is in a better position than it's been in quite some time to actually affect the housing market. Why is that? Well, it owns the FHA, the Federal Housing Administration, which is the biggest lender to first-time home buyers, bar none.

What's more, the federal government has made a major investment in the nation's largest banks. It can now tell those banks, you will be a part of this solution or you will get no more money. So suddenly the government is an active player in this marketplace, whereas before it was really a hand-off kind of relationship in many ways.

One of the interesting things I heard in this conversation today, in this president's speech, all of us are paying a price. And this is a theme that Suzanne Malveaux picked up on. He is really trying to incent every player in this process to do the right thing.

There are carrots. There are sticks. You know, we've been talking about this mortgage cram-down that the president mentioned. This allows bankruptcy judges in bankruptcy to say, you know that mortgage isn't $250,000. It should be $180,000. This is something the banks have long feared. The president is behind it. That's something that is going to help the plan go forward. It's more likely to provide for foreclosure -- for modification of these existing loans.

So this is really a thorough going plan. It's really hard to get your arms around all the details because the government is going to be involved at a level that I think most people are not used to here, really making payments into monthly mortgages through servicers, through the banks and lenders to help people keep their houses.

HARRIS: OK. Let me just ask this because I know this is really your area. I'm wondering as I'm listening to the plan, is this a plan to help responsible homeowners who have played by the rules, as the president mentioned -- that's all well and good -- but is there help for people who are on the verge here of actually losing their homes, in the process right now? WILLIS: Yes. Yes, there is help for people who are on the verge. If you've already lost your home to foreclosure, you are not in this plan. However, if you're on the verge, you've missed payments, you're going to get a new loan. You're going to get a modified loan. You're going to get some help, more than likely, if you know the right place to go and you act quickly.

I think the people that are left out of this particular plan are the people who really can't afford that house at all. They've lost income. They're not working. And that was really addressed in the stimulus bill with lengthening jobless benefits, food stamps. But nobody expects people in that situation to really to be able to hang on to their house because really, Tony, I have to tell you, no lender is going to write a mortgage for somebody that has no income. Not even the federal government.

HARRIS: All right, Gerri, we're going to take a quick break and we'll talk more about this. Let's do that. You're in the CNN NEWSROOM. We're back in a moment.

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HARRIS: And the president, just moments ago, wrapping up his remarks from Mesa, Arizona. Dobson High School, laying out his plan to help mitigate foreclosures and to get a handle on the housing crisis. Our personal finance editor Gerri Willis is with us again for just a couple of moments.

And, you know, Gerri in listening to the remarks, the speech from the president, it seems to me there was lot of focus on this idea of refinancing. And it seems to me that in other, better periods, refinancing has been a real boon to sort of -- to stimulate the economy and get economic activity going again. Could that be the case here? Is that something that the president is banking on with this plan?

WILLIS: Well, let me tell you, as a homeowner, if somebody was able to tell me that I suddenly had this burden off of my shoulders I didn't have to worry about my mortgage anymore, I sure would be more willing to plan the vacation, to make some improvements in my house, buy some more furniture. It changes your whole mindset when you're not under the pressure of this mortgage. It could have big payouts, you know, even more than, you know, drawing people back from the brink of, you know, foreclosure and major, major problems. I think you've got a good point there.

HARRIS: And the FDIC -- sounds like the president is putting more teeth into the FDIC's program and one of the heroes of that program. And we like her a lot here. We think she is really working for homeowners, is Sheila Bair.

WILLIS: That's right. You know, really interesting here when I first talked to the new HUD secretary, Shaun Donovan, he said, we really like that FDIC plan. We really like Sheila Bair. It's going to be part of what we want to do. And you saw it here play out in spades. There are even little tweaks and twists to it, expanding on that idea of the government really getting involved here and getting involved to the point that the government's going to be paying in to some of these mortgages through the services, through the banks and really, you know, trying to make some of these folks whole out there who have really been at the brink.

HARRIS: Yes.

Gerri, thank you so much.

WILLIS: My pleasure.

HARRIS: Thanks for helping us sort through the president's speech.

WILLIS: Absolutely.

HARRIS: And we'll see you tomorrow.

A quick break and we'll get you to Kyra in just a moment.

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HARRIS: And just enough time to say CNN NEWSROOM continues right now with Kyra Phillips.

KYRA PHILLIPS, CNN ANCHOR: Tony, thank you so much.