U.S Consumer Aid: Step In the Right Direction?

US President Barack Obama pledged another US$275bn to a program that includes cutting mortgage payments for as many as 9 million struggling homeowners and expanding the role of Fannie Mae and Freddie Mac in curbing foreclosures.

The plan includes US$75bn to reduce monthly payments for borrowers, helps
homeowners with loans owned or backed by Fannie Mae and Freddie Mac to refinance at lower rates. On the other hand, the Government will double to US$200billion funding available for Fannie and Freddie to buy loans.

Further deteriorating market data showing U.S. housing starts and building permits dropped to record lows in January, as builders shelved construction plans to try to clear a glut of unsold houses caused by the slump in demand.

Major doubts remain over the effectiveness of this latest measure. However, it could well be a positive step towards salvaging a catatrosphic mushrooming in defaults and thus putting more pressure on banks, property prices and limiting consumer spending, which is an important element of U.S. economy.