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

[Snacker]

I have concluded that Sheila Bair does not understand economics. I believe she just wants to show off how she can "fix this economy" by "saving foreclosures".

She may think she is helping out by helping some people avoid foreclosure; and while this indeed may help some people avoid this (whether or not they deserve it really should be in question), this help is only temporary.

Foreclosures are NOT the root of the problem. We are having foreclosures because of the popping of the housing bubble. Not the other way around. Even if theorectically we could prevent every foreclosure, this will not solve the economic crisis.

She will ultimately be delaying the inevitable housing decline. Instead of a quick down turn, it will be a long, drawn out process over the next 10 years.

Looking back at history, these are similar principles that Hoover tried to implement prior to the Great Depression. Using government money to bail out troubled industry.

You cannot support prices using government funds. It doesn't work. And it could make this recession a lot worse than it has to be.

[Los Angeles loft]

Are we really gong to pay all of this money to save the banks? Who is going to save the property owner at the end of the day? I just don't get thsi economic system, can anyone explain?

[simon]

BETTER USE OF THE BAILOUT MONEY FOR HOUSING CRISIS

1. Encourage new buyers by rebate new buyers $10000-$20000 within next 6-12 months, depending on home price. buyers must lived at the house 4+ yrs and the house must be buyer's only home.

2. Speed the bottoming process on homes prices. create new government agency represent the new quality buyers to negotiate with the bank for their short sales inventory and for better assessment of current market prices. New agency must also ask the bank to write down 10%-15% of the current house value.

3.Encourage lending from banks by government guarantee 50% percent loan if new buyers will foreclose on their mortgages. ( for 3 yrs ) I believe new buyers are better qualify and have better knowledge on type of loans they choose. Also, these new buyer will have to put money down, with minimun 10% - 20%.

I am speaking for many responsible buyers who are still waiting for the home prices to bottom or near bottom. Many internet bloc I visit, buyers have a target of year 2001 house prices.

[Steve]

You honest chumps that saved for a down payment and waited for house prices to decline just got screwed. The liars who got in to a house they cannot afford just saved their house will get subsidized by the tax payer for billions. Only in Amercia it pays to lie like a politicain. If you are sick of this vote for Obama.

[Big Idea]

here's one for you Peter

http://news.yahoo.com/s/ap/20081030/ap_on_re_us/
foreclosure_samaritan;_ylt=AnycJsF1BT6OrkSbuzMlC
GhvzwcF

Good things are still happening!

[Fourth Generation]

This came today in the Washington Post:
"U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years." In other words the bailout money is been used to pay dividends to shareholders. Now that is outrageous. The excuse given, paying dividends will encourage banks to participate in the voluntary program. Well if it's voluntary your survival is the incentive to enter the program and paying dividends is not helping to put money in the economy at this time. Stop the pillaging and raping of the treasury. NOW.

[The Original RZ]

I'm very nervous about all the press Sheila Bair has been getting recently. She seems to be spearheading the effort to keep housing prices from falling. In my view, she's public enemy #1.

[OverIt]

"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."

This is exactly how I felt when I first read this headline yesterday. I thought to myself - how could I be so stupid?

Some things are not within our control, some are. I didn't vote for Bair or Paulson or Bernanke etc. etc. but they get to get to make calls on our future and our children's future. What should we teach our kids about fairness? On what it means to be "American"?

Could it be my country has betrayed me?

[jettechn]

Sorry Suzi, but you are an idiot. Nothing personal.

[The Original RZ]

Suzi,
L.A. home prices are MUCH too high as it is. The "downward spiral" that you mention is actually a price correction, and it is badly needed.

[The Original RZ]

Suzi,
L.A. area homes have been overpriced for many years now, and the recent bubble just made it worse. The "downward sprial" that you mention is actually a housing price correction - and one that is BADLY needed.

[Mary C.]

I think allowing banks to pay dividends serves the function of making their shares attractive to investors. The more investment in banks from people purchasing shares, the better they will operate and then will depend less on the government. The government will benefit in the long run because eventually the plan is to sell their shares. Higher stock price at time of sale equals less of a loss or even a potential profit to US taxpayers.

[Sam H]

A big part of the problem with housing is the banks won't pass along the bailout money and the Fed's 1% rate to the consumer in the form of lower credit card rates and lower mortgage and refi rates. The only ways to make the numbers work out for buying a home or investing in real estate is if either the interest rates go down, lowering the monthly payment, or the prices go down, lowering the monthly payment. If you don't want prices to continue to go down, then the mortgage rates have to come down.

Banks refuse to do it, so the government should open up Fannie May and maybe a rescued bank to lend money directly to all homebuyers (who have jobs) and qualified investors at low rates. Increased demand will do wonders for the housing market. Banks will eventually have to follow along and lower their rates too. Throw some money at main street instead of these corrupt financial institutions.

[Fourth Generation]

Mary C, When Chrysler was bankrupt (the previous time not this time :P, they took the government bailout with among others the condition of no dividends payments to shareholders. They accepted and came out of bankruptcy. The program this time around is also voluntary. Nobody is putting a gun to the heads of the banks to take the gov money. The bailout money was not to pay dividends but to put money in the market to allow the banks to start loaning again and restart the financial markets !!!!

[Thinh Nguyen]

I have witnessed so many who tried to spend time and efforts to talk about the past. We're here. Let's work to clean up the mess in the best way. Ask yourself - What have you learned? Would you repeat your mistake? What can be done to prevent any fututure financial crisises?

[jag]

This is a message from your government to all responsible homeowners who saved to put a decent downpayment down and who paid their mortgages on time, and who lived within their means............we are sticking it to you and you can't do anything about it! We don't like you responsible people and we want you to get in debt as much as possible. .

[jacksondog]

the FDIC website has a section for complaints. I suggest we all do as I have already done-complain about the immorality of using tax dollars of those of us who have always played by the rules to "bail out" those who didn't.

[Crash and Burn]

Sheila is not an idiot.

She knows exactly what she is doing and has the full faith and credit of the Bush Administration and the Republican Party. She is trying to orchestrate a giveaway to bankers before they loose power, because they know the Democrats care more about the economy and middle class than they do the bankers. This is an attempt to give the bankers a good by thank you gift for the last eight years.

I wonder what Exxon Mobil is going to get? I guess they have to wait after the election for their farewell gift.