FDIC Revises Proposal to Refinance Troubled Loans

The ""Federal Deposit Insurance Corporation"":http://www.fdic.gov (FDIC) proposed on Friday to spend $24 billion of the $700 billion bailout package to help 1.5 million households avoid foreclosure. This ""new plan"":http://www.fdic.gov/consumers/loans/loanmod/index.html is a mild deviation from the FDIC's $40 billion incentive-based foreclosure plan put forth to Congress committee members in ""late October"":http://dsnews.comview_story.cfmxid=3070, under which the government would guarantee part of homeowners' modified loans.
Under the new plan introduced last week, the FDIC would guarantee 2.2 million modified loans, or about half of the problem loans expected to accumulate between now and the end of 2009. Borrowers would get reduced interest rates, loan term extensions, or principal forbearance to make payments more affordable, and monthly payments wouldn’t total more than 31 percent of homeowners’ pretax monthly income. Loan servicers would be paid $1,000 for each loan they modify under the program, and taxpayers would absorb half of the loss if a borrower defaults on a modified mortgage.
The ""Treasury Department"":http://www.treasury.gov still opposes the FDIC's plan for a national foreclosure relief program. Neel Kashkari, the Treasury Department's assistant secretary for financial stability, says the financial rescue package includes a promise to earn taxpayers money. Bailing out homeowners on the brink of foreclosure has no direct return on investment for taxpayers, Kashkari says.
Last month, the ""Bush Administration opposed"":http://dsnews.comview_story.cfmxid=3110 the FDIC's original loan modification plan because it said the price tag was too high. Instead, the administration opted for a loan modification program led by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac - a program that critics argue does not offer broad-based foreclosure assistance because of the limitations caused by loan securitization.
FDIC Chairman Sheila Bair herself said that the ""GSE loan mod program"":http://dsnews.comview_story.cfmxid=3147 fell short of what was needed. Although it was modeled after the ""FDIC's IndyMac approach"":http://dsnews.comview_story.cfmxid=2797, she said there were looming questions about its implementation and overall benefit.
President-elect Barack Obama told ""CBS' 60 Minutes"":http://www.cbsnews.com/sections/60minutes/main3415.shtml in an interview televised last night that if there was not an aggressive, effective national foreclosure assistance program in place by the time he took office in January, he would make it one of his first priorities.