Treasury, FDIC working on $500-billion mortgage workout plan

Federal officials are moving closer to a plan that would provide government guarantees for as much as $500 billion in troubled mortgages, helping millions of people stave off foreclosure.

The Treasury Department and the Federal Deposit Insurance Corp., are working on details of a plan outlined last week by FDIC Chairwoman Sheila C. Bair (pictured). The plan, which would cost $40 billion to $50 billion, would be modeled on mortgage modification programs being implemented by Bank of America Corp.’s Countrywide unit and by the FDIC for mortgages serviced by the failed IndyMac Bank.

The idea is to use loan guarantees and other enhancements to encourage lenders to modify mortgages, lowering monthly payments to a point that borrowers could afford them.

Andrew Gray, an FDIC spokesman, said the agency has had “productive conversations” with Treasury and other Bush administration officials, but it was too early to speculate about the framework or size of a potential program.

Treasury spokeswoman Jennifer Zuccarelli said, “the administration is looking at ways to reduce foreclosures, and that process is ongoing. We have not decided on a particular approach.”

-- Jim Puzzanghera

Photo credit: Bloomberg News

Comments

[Irrational Buyer]

This is how capitalism ends.

[Cal]

What I love about all this is how Republicans were trying to paint Obama as a socialist. We've just seen the greatest socialism shift in the world and it all happened under a Republican leader. The Republican base eats up those lines hook, line and sinker. The Democratic base is no picnic either, their blindspots lie elsewhere.

This program will ensure home sales stay very low and I guarantee the banks will find the most efficient way possible to maximize their profit. I also guarantee that it will maximize the loss to taxpayers as well.

[keith]

See how stupid you were for saying to yourself "Self, you can't really afford that house, no way"

You shoulda had a smoke and called the Grits & Greens Disco Mortgage King in Atlanta and bought that puppy.

[Sacto]

During the housing boom here in California I took a position with a national home security company to sell services to new home owners. On average I went to the homes, by appointment, of 3 to 4 first time home owners daily. Better than 75% of all those first time buyers I met lied their way into the new mortgage. I learned that most had not a penny of their own invested in the home, no down payment or closing costs. Many had a second loan of about 20% of the new home price to use as a down to qualify for the first mortgage which was usually an ARM of less that 1% for the first 2 years. All most all these folks elected not to verify their income but instead signed a form that stated their income. Many of these folks bragged on how they lied on the income and nobody even questioned it. They would overstate their income by double or triple, and also state employment income for spouses that didn't even have a job. They all knew they couldn't afford the loans when the ARM started to adjust but they all felt that they would then flip the house and net a handsome profit based on the housing boom and increasing home prices. These are the folks, that along with the lenders, that brought us to this mess we have today. And these are the crooks John McCain wants to rewrite at a lower principal the mortgage so they can stay in the home. What about helping us, the folks who saved and sacrificed to get a 20% down payment, had our income and debt ratios approved and securitized by lenders and have made our payments on time for the last decade or two. We now have homes that are worth less because of the crooked folks I described that McCain wants to help. Screw them, let them loose their homes and let’s get some help for the real American homeowners who got hurt by the crooked lenders and borrowers!

[anonymous]

They're lying. They have to save some of the money to bail out their friends in the insurance industry, not to mention the big three. Disgusting.

[desmo]

Paul Sheldon tried hard to stop Sheila, see what it got him:

http://www.youtube.com/watch?v=i5OlolbLXvw&feature=related

[Lou]

The majority of these workouts will go right back into foreclosure after 3 months.

The government had become the piggy bank for the stupid and irresponsible whether on Wall or Main St.

[mike]

i think everyone is too paniked. the 700 b bailout package is already working its way into the economy in the form of much easier bank loans and credit. the plan is having a HUGE success in kickstarting the economic picture as a whole. you people just need to stop looking at the small picture.

[rukidding]

For most people, paying off your mortgage now makes you an idiot. Saving makes you an idiot. Living within your means makes you an idiot. Paying your taxes makes you an idiot.

I'm an idiot. I'm getting completely outplayed now. I'm not being sarcastic. I just now really feel like I've been an idiot, and I've hurt my wife and children with my years of "responsibility."

What an idiot I've been all these years.

[Web Smith]

After the same Congress went against the wishes of 90% of the population and supported a bill to spend hundreds of billions to bail out banks who caused their own problems, this is not going to go over too well with the American citizen.

Any Citizen bailout bill should include 100s of billions of dollars and prevent banks from raising interest rates on credit cards to more than what a loan shark charges. It will be interesting to see if, after this legislature has allowed and caused these things to happen, voters go back for more.

http://ewebsmith.com/Finance/notlistening.html

[Web Smith]

After the same Congress went against the wishes of 90% of the population and supported a bill to spend hundreds of billions to bail out banks who caused their own problems, this is not going to go over too well with the American citizen.

Any Citizen bailout bill should include 100s of billions of dollars and prevent banks from raising interest rates on credit cards to more than what a loan shark charges. It will be interesting to see if, after this legislature has allowed and caused these things to happen, voters go back for more.

http://ewebsmith.com/Finance/notlistening.html

[Suzi]

I hope this plan slows down the downward spiral home prices have been seeing. Los Angeles lost over 25% last year and will probably lose another 15% next year.

Sources: http://www.homepricetrend.com

[Louis Cabeza]

Ah, Ms. "Life Isn't Fair." Fitting that she's looking down upon us in the photograph.

Let the market hit bottom. The government apparently has money to give away to just about everyone, except those who have managed their affairs prudently.

[waitingitout]

I'm with Lou. The people helped by mortgage relief will be on the margins - the recently jobless/ill/injured/divorced, and maybe only the moderately greedy/stupid. But the predominant profile we hear so much about - the buyer with stated income/stated assets, an 80/20 with a 2/28 at 2% whose PITI jumped from 1800 to 3800 overnight - that guy couldn't afford his house if you gave him a 100 year fixed and spotted him a year's payments. All this does is extend his servitude to the bank a few more months (which, in an odd way, might be apt punishment for his greed/stupidity), but in the end it solves nothing, it does nothing.

Of course, someone will find a poor schmo who actually benefits from the program, and we'll have our $500 billion photo op on the evening news with katie couric.

By the way, anyone read Calculated Risk? We've added nearly $1 trillion to the national debt in the last 4 weeks.

[Mike P.]

This new plan from the FDIC is completely immoral. They're basically offering government-sponsored Option ARM mortgages. All it will do is keep 'unsophisticated' buyers (ie the irresponsible rubes who believed they could flip before the teaser rate increased) on the hamster wheel of house payments for five more years, just so all the foreclosures don't happen right now. And do you know what's going to happen at the end of five years? Either all those 'saved' homeowners will suddenly default on the new reset terms, or the government will have to come up with the next bailout to keep them in their homes.

This is a terrible path the gov't has set out on, and plans like this one are the result of ignoring moral hazard. It's not right that responsible citizens are being told that we have to pay for these programs. We're going to be taxed like crazy in the future to pay for all this - and I'm starting to think that maybe I don't really want to be part of that.

[Mike P.]

I almost forgot.... the correct solution (for anyone that cares) is to allow bankruptcy judges to reduce the principle loan amount of a mortgage (ie a 'cramdown') during BK proceedings. This has two effects:

Punishment #1: the BK adversely affects the homeowner's credit for 10 years. Good!

Punishment #2: The lender has to write off the loss on the portion of the loan that was eliminated by the judge. Lenders who have lots of defaulting loans will quickly succumb and can be purchased by stronger competitors. Great!

Unfortunately, the banking/lending lobby has repeatedly squashed this idea.

[Nuts..]

Everyone is just looking at one side of this picture...

What about other side of that picture., where people who paid 20% and took ARM's and can't refinance because of house prices depreciated by 20%.... or people who lost jobs because of this mess., or people who got sick ..

If we don't do something to prevent foreclosures, it will continue drive the house prices down... and no one will be able refinance or afford to pay mortgages....

It's a good idea to encourage lenders to take some hit and govt. take some hit and consumer take some hit., by reducing the principle/rate whatever but with a catch when they sell the house., if they get profits they need to repay that amount etc.,

I don't see a big deal to come up with proposal that has some rules and I am not sure why govt. so struggling about...

[sailor7x]

Thank Goodness

For a minute there I thought I was going to have to teach my children personal responsibility!

[T. Francis]

I've lost several thousand dollars over the years playing craps in Vegas. The crooked casino never should have allowed me to play.

I'm very stupid, and very irresponsible, and I expect my government to help me out. It's not fair that I should be allowed to gamble with 75% of my gross pay, unless of course I win, in which case I'll just move to the $25 dollar tables, because when you're hot, you're hot!

[tew]

Too many comparisons with the Great Depression have been made during the past month. A huge difference between now and then is that then there really were millions of helpless victims. People that worked their fingers to the bone and struggled lost their homes. People were hungry. There was little hope and no welfare system. We weren't talking about single digit unemployment. We didn't think that five people living in a 600' apartment was indecent - to many people that was paradise vs. the alternative.

Now we're taking money from hardworking people and their children and their children's children to give money to all sorts of people - everyone from the single mother working two jobs to the speculator and the thief. As long as they can "prove" they "need" the "helping hand" the tax money will flow.

Back then brokers jumped out of windows. Now the mortgage brokers keep their ill gotten gains with no real threat of retribution.

Back during the Great Depression one would have to have a cold heart of coal to not see the basic human needs unmet. Today you'd have to have a heart bleeding and a head full of air to not see the scam in front of you.

Today we take from that family crammed in a small apartment and pile debt onto their children so the couple down the street can keep their cars and 2500' house with plasma TVs.

Today we talk compassion but do cold hard math to figure out how to prop up prices even though it hurts at least as many as it helps.

Back then we set up institutions to try to make housing affordable. Today we twist the corrupt remains of those institutions and use them to inflate prices.

[Josh]

This is a slap in the face to all responsible homeowners and renters who are careful and live within their means. I've never been more passionate about an issue. Time to take to the streets. Just name the time and place and I'm there.

[E]

Hey...

Stupid people.

One question for you.

Don't you want your children to be able to afford homes in the future?

Or would you rather your homes value went up so that you can HELOC that next vacation?

[Giacomo]

I've heard hints of this idea:

Regulators have privately conceded that home values WILL be falling to historically sustainable levels (affordability) and probably a bit below. All these attempts to limit foreclosures are therefore only "early braking" actions designed to limit the overshooting to the downside.

I don't know if this is true, but I think it's plausible. Even most politicians' statements seem fair ambiguous when it comes to "supporting home prices" -- they manage never to say WHEN or at what level.

[PacificGatePost]

CONGRESS IS FULL OF LAWYERS, SO WHY DID THEY ALL FORGET TO INCLUDE SOME CRITICAL FINE PRINT IN THE BAILOUT PACKAGE?

More abuse of the taxpayer is coming.

http://pacificgatepost.blogspot.com/2008/10/
what-they-didnt-tell-us-about-bailout.html

Congress didn't do its job, ... again.

[Crash and Burn]

Make no mistake.

This is the Republican plan to transfer some of that 700 billion from the "with strings attached" the Democrats added to the bill to try and transform it to what it was originally planned to be: a giveaway to the bankers.

Lets not be dumb enough to let them get away with it.