The FDIC and the US treasury are contemplating using around $50 billion from the recently passed bailout of the financial industry bailout to guarantee about $500 billion in mortgages. The “tentative” plan could include loan modifications that would lower interest rates for a five-year period according to Bloomberg.
The program would be run by Sheila Bair and the Federal Deposit Insurance Corp. and could potentially guarantee around 3 million home mortgages. The plan had been scheduled to be announced Wednesday but was delayed because the details were still being finalized.
The new plan would dwarf past attempts by the administration to curb foreclosures and will be the most aggressive effort yet to limit further damage to Main Street. A loan modification plan that Sheila Bair, Chairwoman for the FDIC has been advocating for over a year and she may just get her wish.
The program, which could potentially help several million homeowners either refinance or modify their current mortgages into affordable loans, would require lenders to restructure mortgages based on a borrower’s ability to repay. The plan is said to give homeowners 5 years of fixed, lower monthly payments before they can reset again.
In the past, the Bush administration had relied mainly on a voluntary efforts of lenders and mortgage servicers to assist struggling homeowners with long term affordable loan modifications to stem the foreclosure tsunami hitting our nation.
Recently, FDIC Chairwoman Sheila Bair publicly criticized the administration for doing to little to help Main Street. It appears that her comments have not fallen on deaf ears.
Today Bair discussed the program at an international deposit insurers conference in Arlington, Virginia, without offering details. “A framework is needed to modify loans on a scale large enough to have a major impact,”’ Bair said.
The new FDIC and Treasury program would provide incentives to lenders and mortgage servicers to offer long term affordable loan modifications.
The government is also considering guaranteeing second mortgages, such as a home-equity lines of credit (HELOC), to assure investors they wouldn’t take losses when the loan were modified. Sources say a guarantee in effect would put taxpayers on the hook for the loan if borrowers default.
Just this past week the FDIC was actively searching for a large commercial building in Orange County, California to house potentially thousands of employees who’s jobs will consist of reworking toxic mortgages for homeowners.
