With Congress in recess, all the housing action in Washington is centering around the Obama administration's massive relief package for 8 million-plus financially-troubled home owners.

Though key working details won't be available until March 4, the broad outlines of the plan are unprecedented in scope and cost.

There are three main components:

First, quick refinancings for an estimated three to four million borrowers whose mortgages are owned by Fannie Mae or Freddie Mac, but who cannot qualify under regular guidelines because their equity is inadequate. Many of these owners will get new fixed, long-term rates in the low five percent range, improving their chances of staying out of default and foreclosure.

Second, An aggressive $75 billion outreach effort to keep millions of debt-laden, seriously delinquent owners out of foreclosure. Lenders and servicers who agree to participate and modify monthly payments to 38 percent of owners' household incomes will then receive co-payments from the government to cut payments even further -- to 31 percent of monthly household income.

Lenders and servicers -- even some borrowers -- will be eligible to receive annual thousand dollar incentives for on-time payments over five years that avoid forcelosure.

Third, Fannie and Freddie -- who are pivotal players in the homeowner relief plan -- will each receive $200 billion of additional injections of capital from the government, and the Treasury will continue to purchase their mortgage backed securities to keep interest rates low for all borrowers.

Critics of the Obama program surfaced almost immediately. Some focused on the plan's support for legislation to empower bankruptcy court judges to “cram down” -- unilaterally reduce -- home owners' principal balances. They warned that this would increase risks to lenders and force them to increase mortgage rates for all applicants in the coming years.

Other critics said the plan won't be helpful enough in the markets where it's most needed: California, Florida, Nevada, Arizona and parts of the East coast. That's because it apparently does not provide assistance to borrowers whose loan balances exceed their property values by more than five percent.

Also, critics charge, it offers minimal aid to the high-cost “jumbo” segment of the market, which is crucial in states like California.

It will be weeks and months before we begin to see just how effective the Obama housing relief effort is in stabilizing prices and preventing foreclosures.

Published: February 23, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.