by Frank James
Sheila Bair, chairman of the Federal Deposit Insurance Corp. has been a strong advocate within the Bush Administration for much more aggressive action to stop foreclosures since that is the part of the financial calamity that keeps spreading like gangrene and pumping toxins throughout the rest of the system.
Other officials in the Bush Administration, like Treasury Secretary Henry Paulson, have reportedly rebuffed her, believing that a focus on large financial institutions is more efficient.
But Bair and the FDIC have persisted. Today, the FDIC unveiled a proposal meant to prevent 1.5 million foreclosures which it estimates would cost around $24.4 billion. The program would be for delinquent mortgage loans not held or guaranteed by Fannie Mae or Freddie Mac, the government-sponsored enterprises, or GSEs.
An FDIC chart that shows the agency's belief that its new proposal could prevent 1.4 million house foreclosures.
The FDIC explained what it wants to do in a fact sheet:
Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow (around 4 percent of seriously delinquent loans each month). It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.
Modifications should be provided using a systematic and sustainable process. The FDIC has initiated a systematic loan modification program at IndyMac Federal Bank to reduce first lien mortgage payments to as low as 31% of monthly income. Modifications are based on interest rate reductions, extension of term, and principal forbearance. A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale, while leveraging available government funds to affect more mortgages than outright purchases or specific incentives for every modification. The FDIC would be prepared to serve as contractor for Treasury and already has extensive experience in the IndyMac modification process.
Basic Structure and Scope of Proposal
This proposal is designed to promote wider adoption of such a systematic loan modification program:
1. by paying servicers $1,000 to cover expenses for each loan modified according to the required standards; and
2. sharing up to 50% of losses incurred if a modified loan should subsequently re-default
We envision that the program can be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, we expect that about half can be modified, resulting in some 2.2 million loan modifications under the plan
The Washington Post reported on the proposal as well today.
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Comments
$24.4 billion in welfare to people who deliberately bought more house than they could afford, paid for by us taxpayers who lived within our means. The only thing "aggressive" about this proposal is how aggressively the government would raid our wallets.
Posted by: Regime Change | November 14, 2008 5:14 PM
Regime -- Please don't paint everyone who is facing foreclosure with such broad brush strokes. I can tell you of one person who was a couple weeks late on one payment -- not missed, just late, and still within the 30 day grace period -- who is going through this. By being late just once, her mortgage was put into "default." Like many others, her mortgage company got scared and dumped "risky" accounts. With hers being flagged as in default, she was served with foreclosure papers. She didn't buy "more house than she could afford" -- she was late. Once. There are many, many people who are caught in just such a situation. Mortgage companies are just out for themselves and innocent people are being kicked out of homes they've lived in for many years.
Posted by: Hope for the Future | November 14, 2008 7:44 PM
Regime's attitude is all to indicative of what is wrong with our country.
Are you really that blinded by greed and anger? If you're responsible for yourself and your family, why feel such anger and hate towards your neighbor? If 5 houses on your block, or in your neighborhood fall into foreclosure - do you not see that it affects you? That's 5 houses that just depreciated in value - bringing your home value down. That's 5 homeowners not paying taxes - yours will go up next year when the cops/firefighters/garbage pick-up/public workers/water dept.....etc. bill isn't fully funded. That's 5 families that don't shop at the local grocery store anymore. 5 families that don't eat at local restaurants, buy cars at the dealers in town. All of those places that you're just blindly assigning as 'wasteful' - they also pay taxes to your municipality and State. They are now also going broke, so do the math.
Is it a frustrating situation? Sure. Is sitting in your sheltered home spewing your anger and venom on some blog helpful? Cathartic, maybe.
Posted by: karl | November 14, 2008 11:39 PM
This bailout will only bankrupt the taxpayers. I can tell you of one person who was forced to eat dog food because she had to shell out for someone else's bailout.
"Hope", is that what you want? People eating dog food? Your attitude is indicative of all that is wrong with our country.
Posted by: Regime Change | November 15, 2008 4:08 PM
I can't make you prove it, but that's the beauty of the anonymous internet - dog food? Food stamps, food pantry's....etc. What bailout are you referring to? Were we all involved? How will this 'bankrupt the taxpayers'?
Again, I see the importance of a cathartic outlet, but as far as progressing the discussion....it lacks. Please use appropriate quotes when saying "your attitude is indicative of all that is wrong with our country".
Posted by: karl | November 15, 2008 6:18 PM
Regime -- my "attitude" of compassion is what is wrong with this country? Yeah, OK. And my friend who lost her home because she was a couple weeks late on one payment got what she deserved, right?
Posted by: Hope for the Future | November 15, 2008 8:14 PM