President Barack Obama unveiled his plan to help the nation’s homeowners in a speech he delivered at Dobson High School in Mesa, Arizona. Coming off his signing of the massive economic recovery legislation, the President set his sights on one of the leading factors fueling the recession.

At the heart of the current recession is the implosion of the housing market and the resulting surge in mortgage foreclosures. While the housing crisis was rooted in the proliferation of high risk, sub-prime mortgage instruments, the bottom fell out of the market as many prime customers overextended themselves through home equity loans and housing values began to dive. As a result, many people owed more on their mortgages than the value of their homes. Throughout the country foreclosures have spiked as homeowners, facing the loss of jobs and mounting debts, have been unable to make payments.

The President took his message to an area that is hard hit by the mortgage meltdown. In Arizona, some 150,000 homeowners are at risk of foreclosure. Nationally, the figure is now approaching 6 million. The crisis not only impacts homeowners but renters as well, as multi-unit dwellings that go into foreclosure puts tenants at risk of eviction.

Mr. Obama reflected on the bind many homeowners are in, as they struggle to act responsibly in the face of financial uncertainty. “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. Then you open the retirement fund. 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.”

The “Home Affordability and Stability Plan” announced by the President is intended to help up to 9 million families restructure their mortgages to avoid foreclosure. The plan will enable up to 5 million responsible homeowners who took out loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance. By refinancing these families could reduce their mortgage payments by thousands of dollars per year. The plan also creates a $75 billion Homeowner Stability Initiative aimed at keeping up to 4 million at-risk homeowners in their homes. This component of the plan involves providing a cash incentive of up to $1,000 each year for five years for homeowners that stay current on their loan. It will also create an insurance fund of up to $10 billion, designed to discourage lenders from foreclosing on mortgages that are viable now out of fear that home prices will fall further in the future. The last component of the plan is strengthening confidence in Fannie Mae and Freddie Mac. The Treasury Department will increase its funding commitment to both lending institutions. Treasury will increase its preferred stock purchase agreements in the two firms by $100 billion each, increase the size of its mortgage portfolios, and work with Fannie Mae and Freddie Mac to support state housing agencies. None of the funds will come from the Troubled Assets Relief Program (TARP).

President Obama spoke of the breadth of the housing crisis and communities beyond those currently impacted by foreclosures are being affected. The President noted, “Even if your neighborhood 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.”

Mr. Obama faces a crisis that has multiple moving parts. The recently signed American Recovery and Reinvestment Act of 2009 is being counted on by the White House to stimulate job growth and reverse the nation’s high unemployment rate. At the same time, the Treasury Department is seeking to shore up the nation’s banking system, get credit flowing again and revive the American automobile industry. Now, the housing plan offered by Mr. Obama is the administration’s attempt to stop the run of mortgage foreclosures across the country. Each issue by itself would be a mountain to climb. The Obama administration is facing a mountain range of crises that will require a herculean effort to resolve. Just one month into office and President Obama’s tenure is being defined by the crisis he inherited.