Today in Phoenix, President Barack Obama announced the next steps the administration is taking in the fight to keep families from losing their homes. It is a multi-prong approach that includes changes in the bankruptcy law, a carving of $50 billion from the economic stimulus package, and other actions the President can take by executive fiat. The bankruptcy legislation is expected to mirror the two bills currently pending before congress. The President specifically mentioned giving bankruptcy judges the right to modify residential mortgages by cramming them down to the current value of the real estate. Both bills that are pending in Congress provide for the changes to take effect immediately upon passage.

The President’s proposal includes giving Fannie Mae & Freddie Mac new authority to refinance loans they own or guaranty. Within two weeks, rules will be announced to provide incentives to lenders of subprime loans to work with borrowers. The goal will be to adjust monthly payments to no more than 31% of the borrower’s income. The government will subsidize loan modifications under this program.