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A new home foreclosure relief plan

November 14, 2008 | 11:40 am

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