13 WTHR - Indianapolis News |What to expect from the federal foreclosure plan

What to expect from the federal foreclosure plan

Rich Van Wyk/Eyewitness News

Indianapolis - President Barack Obama threw a $75 billion lifeline to millions of Americans on the brink of foreclosure Wednesday, declaring an urgent need for drastic action - not only to save their homes but to keep the housing crisis "from wreaking even greater havoc" on the broader national economy.

The lending plan, a full $25 billion bigger than the administration had been suggesting, aims to prevent as many as 9 million homeowners from being evicted and to stabilize housing markets that are at the center of the ever-worsening U.S. recession.

Thousands of central Indiana homeowners will be helped by the president's new plan.

While investors scoured through hundreds of foreclosed homes looking for bargains at the sheriff's sale, Margie Martin sat nearby looking bewildered and scared.

" I feel hurt," she said. " I don't know if I have a place to stay. I gotta look for somewhere to stay."

The modest Indianapolis home where Margie says she paid the rent every month for 25 years, is sale bid item number 290. Her new landlord apparently didn't pay the mortgage. Margie doesn't have the $29,750 needed for the minimum bid.

"I am Christian, I pray for and ask the Lord to help me. I'm scared," she said, close to tears.

Thousands of Indianapolis area homeowners and whole neighborhoods are scared by record numbers of home foreclosures. Empty homes attract crime, scare buyers and lower surrounding home values. Many have been damaged by vandals or former owners.

On the front door of one vacant home there's a sign saying the water line is cut, drain pipes are missing and there may be hazardous material inside.

Helping struggling home owners avoid foreclosure would help improve property values and the economy as a whole.

No longer fearful of losing their homes, Drew Klacik of IU's Center for Urban Policy and the Environment says families might have enough money and confidence resume spending.

"As those people begin spending again, factories have to produce." Klacik explained. " If factories have to produce, the more people go back to work."

If it all works, Margie Martin and people like her might not lose the place they call home.

Learn more about the plan and whether you might be eligible for help.

More from The Associated Press:

The same mortgage lenders that candidate Barack Obama accused last year of causing the housing mess would get a windfall from President Obama's government under his foreclosure rescue program.

The $75 billion plan announced Wednesday has the potential to be far more effective than past federal efforts to help struggling homeowners lower their mortgage payments and stay in their homes.

But for that to happen, investors in complex mortgage securities have to agree to participate - something the government has so far failed miserably to persuade them to do.

That's where the goodies for the much-maligned industry come in.

Companies would get $1,000 for agreeing to give a strapped homeowner a lower monthly payment instead of foreclosing - more if the borrower hasn't yet fallen behind on what they owe. They can get up to another $3,000 over the next three years. And they get government insurance to cover part of the money they might lose if the homeowner ultimately defaults on the house anyway.

Last October in Reno, Nev., Obama vowed, "I won't let banks and lenders off the hook when it was their greed and irresponsibility that got us into this mess." But the outlines of his plan were an acknowledgment that he will need cooperation from firms that collect mortgage payments - known as loan servicers - if he intends to reach his goal of preventing up to 9 million foreclosures.

"The truth is that at the end of the day, loan modification remains voluntary, so the servicers need to see it as sufficient incentive to participate," said Andrew Jakabovics of the Center for American Progress, who has worked with Obama's team on housing issues.

Still, Jakabovics called some of the payments an "unnecessary windfall" that is "overly generous" - particularly since avoiding a costly foreclosure is a financial imperative for mortgage servicers anyway.

"You still have the very serious question of what kind of incentives you're providing for what's essentially bad behavior," said David C. John, an analyst at the conservative Heritage Foundation.

Even tough mortgage industry critics concede, however, that such enticements are necessary to get companies to step up and help homeowners, given the legal and financial challenges that modifying home loans can pose.

The Associated Press contributed to this report.