President Barack Obama has unveiled a plan to reduce the growing number of home foreclosures.  While the plan does not cover every homeowner in trouble, some analysts say the plan is a positive step toward stabilizing a declining real estate market.

Millions of Americans are losing their homes to foreclosure because they cannot pay the mortgage.  Merilee Maybee of Phoenix, Arizona is among the estimated two million whose homes have been seized by lenders.

"It's just gone," she said.  "Everything we did, every wall we painted, every plant... we planted. Everything we did, you know, it's just not - it's gone."

Recently President Barack Obama launched his $275 billion mortgage rescue plan to help homeowners in financial distress:

"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," he said.

The Obama plan could help up to nine million homeowners in two groups.  One is made up of people who now owe more on their mortgage than the house is worth.  Another includes homeowners who cannot afford the monthly mortgage payment.

In January of this year, one in every 466 U.S. houses was already in some stage of foreclosure.  That's according to Realty Trac, an industry monitor.

When foreclosed homes go on sale, they flood an already bloated real estate market.  At the National Association of Realtors, Chief Economist Dr. Lawrence Yun describes the cascading effect.

"Too many sellers, too few buyers, and home prices are falling," he explained.  "So, if we can reduce the number of homes reaching the market from foreclosures, then it will help bring stabilization to home prices."

Because there are eligibility limits to the Obama plan, not every homeowner in trouble will be helped.

Sharon Price is an analyst with the National Housing Conference, a consumer advocacy group.
"They are not going to be able to save everyone," she noted.  "There are still going to be millions of families that end up in foreclosure."

Under current law, homeowners facing foreclosure cannot go to court to declare bankruptcy and then change the terms of their mortgages.

But Congress is considering rewriting that law so that judges would have authority to work out a settlement or help people stay in their homes.  President Obama supports these changes.

The Mortgage Bankers Association, a trade group representing lenders, warns that changes in the bankruptcy law could have expensive consequences.  The association's vice president Francis Creighton says international investors might be scared away from buying U.S. mortgages.

"If you give bankruptcy judges the ability to change the value of the mortgage, then the international investor is going to require, in effect, a higher price for those mortgages going forward," he explained.  "It is either that, or maybe they will not make those loans anymore. "

Bankrupcy lawyers and consumer protection groups say the mortgages are often sold and resold to investors, who either cannot or do not want to change the terms even when it is in everybody's best interests.

The Obama mortgage plan is limited to people who live in their homes.  Vacation homes, or houses bought to generate income as rental properties are not covered.

National Housing Conference analyst Sharon Price explains why there also needs to be foreclosure protections for people who rent.

"Renters make up between 25 and 40 percent of the foreclosures that are taking place across the country," she noted.  "So when an investor owns a property, and they [the lenders] foreclose, the renter then gets evicted."

Some people apparently cannot pay their mortgages even after the terms are changed.  A December 2008 U.S. government report said nearly 20 percent of the people who had their mortgages modified in the first quarter of last year were behind in their payments later.

Credit Suisse, an international financial services company, has predicted that more than eight million foreclosures are expected in the next four years.