A new home foreclosure relief plan

The Federal Deposit Insurance Corp. today formally proposed its long-talked-about plan to help prevent home foreclosures by offering incentives to lenders and offering government guarantees to cover losses on the modified loans.

The plan, pushed by FDIC Chairwoman Sheila Bair, would cost $24.4 billion and could prevent 1.5 million foreclosures through the end of 2009. It is based on the loan modifications the FDIC has undertaken for mortgages serviced by the failed IndyMac Bank in Pasadena, which the regulatory agency took over in July.

But before people get too excited about the idea, the Bush administration has resisted adopting it, meaning it’s probably going nowhere at least until President-elect Barack Obama takes office in late January.

Treasury Secretary Henry Paulson said this week the FDIC plan and other far-reaching proposals to reduce foreclosures would "require substantial government subsidies" -- subsidies that would not come from the $700-billion financial rescue fund.

"I believe it is an important idea," he said of the plan. "As we evaluate the merits of any new proposal, we also will have to identify and justify the means to finance it."

But many Congressional Democrats have praised the FDIC plan, and may push it after Obama takes office. Obama has talked about taking more aggressive steps to stem foreclosures, so it may appeal to him as well. And Bair has scored points with Democrats for pushing so aggressively to help homeowners -- so much so that she's been mentioned as a dark-horse candidate for Treasury Secretary.

-- Jim Puzzanghera

Comments

[WheresTheTrickle]

First, housing payments for delinquent borrowers two months or more late would be reduced to 31% of gross monthly income.

This is dumb...if I qualify but am current on my loan I'll simply stop paying for two months to get a loan reduction. They have to say that ALL are eligable, not just the deliquent otherwise your going to have a mess.

[publius]

Also, the Chairwoman stated that one of the goals of the program was to "stop the decline in housing prices". Setting aside practical and ethical questions for moment, how is this remotely within the realm of proper influence for the FDIC? It really is an outrage that an organization charged with securing bank deposits would seek to influence the cost of housing.

Of course, it's doubly absurd that the Chairwoman actually thinks she CAN influence the price of housing to any significant degree. While there is no doubt reason to look into keeping housing prices from falling too low in certain markets that never went up much to begin with, failing to differentiate between those markets and bubble inflated markets is just plain dumb.

In markets like L.A., where bubble pricing still reigns, it is neither wise nor possible to stem the price decline.

[Laker]

I have about $100,000 in Indymac bank. With Sheila's "the" Bear decision to reward to deadbeat and liars that over stated their income and now will get their effective "rent" to go down does because they are deadbeat and don't pay their mortgage (RENT) on time for 3 months...
I decided that because of this stupidity, i will pull all my money out of Indymac and put it to work at another bank.
It is also not helping that they reduced the rate by 0.25%.
Now I will get more and not help support the deadbeat FDIC stupidity.
Byebye Indymac

[Tom Lawler]

Requiring servicers to perform a "net present value" test on loans to ascertain whether modifying a loan is more beneficial to investors than foreclosure makes a lot of sense, and it's sad that many servicers have been too swamped to do so. Having the government insure modified loans (which are done ONLY if they are expected to benefit the lender!) against re-default, however, is horrendous public policy, as it is a DIRECT BAILOUT of lenders!!! Why should taxpayers bear the burden of ANY loss on a bad loan -- and you can be sure that many modified loans which remain upside-down will re-default (the modiifications will for the most part not involve principal write-downs). That's just silly! And if current lenders/servicers actually think such a program might be implemented, they'd be "putzes" to modify loans now, but would instead wait for the free government insurance that would bail out mortgage lenders/investors.

[Tony]

Completely, totally, and unequivacably outlaw / prohibit adjustable rate 1st mortgages on primary residences...then fix the rates on the same instruments that are in trouble at say (5.5%). It gives homeowners a chance, doesn't forgive lost equity, doesn't require bailout money, and creates a more stable contract. That said...screw the "you can't modify these agreements...contracts are sacred" bunch! You should never have been allowed to offer such an F'd up instrument to a homeowner. And cut the crap about risk...the more stable the instrument, the less risk...of course your precious appetite for YIELD has to curbed a little...and I'd guess that's probably like a heiroin addict going through withdrawal...too bad. Please...no lectures from the greedy (landlords and mortgage bankers)...you've already cost all of us taxpayers enough already. And to all the foreclosure- loving house flippers and predatory real estate types...there's a special place for you in the next life. Hopefully the FDIC plan can start serving up some of your just desserts here first..

[Victoria]

Don't forget, IndyMac's policies for training brokers to maximize profits by subjective, discretionary, discrimination practices introduced much risk while they churned out the instruments they promised would make money for the investor. I was flipped, overcharged, recently denied modification (my loan is in pieces and the investments most likely already been written off or recovered by the fed), and all I can think is someone is still hoping to foreclose to secure their theft from me to profit the bankers and most likely NOT the investors the more time that goes by. Probably the only reason they haven't moved to do so yet is that my home has been valued at $100k less than they appraised it for 12 months ago. I feel no moral obligation to pay someone who intentionally tried to strip me of my equity, rip me off, and make me homeless. Investors should blame the brokers, not the homeowners for any losses. In fact, my husband and I lost close to $5k in the last quarter in our 401k because we were unaware the bank was making similar risky investments. We homeowners ARE the investors, and we've been robbed by those a broken system.