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    Wednesday, October 29, 2008

    FDIC, Treasury Mull Foreclosure-Prevention Program

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      The Federal Deposit Insurance Corp. and Treasury Department are working on a new program to prevent foreclosures.

      Sources told FOX Business Network’s Peter Barnes that the FDIC, under Chairman Sheila Bair, is pushing a plan to provide $500 billion to $600 billion in government guarantees on as many as three million problem mortgages.

      According to the plan being mulled, banks, savings and loans, investment funds, hedge funds and other mortgage holders, would be required to restructure the loans based on the homeowners ability to pay. The plan would also call for lower monthly mortgage payments for a “time out” period of five years so people can stay in their homes during the economic crisis.

      What’s more, the plan would give a government guarantee on a second loan on a home so that the banks and other lenders won’t lose money on the mortgage modifications. Currently, if a mortgage is modified the lenders of the second loan would lose out.

      While the plan does not call for more government expenditures, by making the loan guarantees there’s a chance there will be some payments and expenditures by the government if some of the loans ended up in default. As an example if 1% of the modified loans failed, the government would have to pay the loan holders $5 billion to $6 billion.

      "While we have had productive conversations with Treasury and the Administration about options to for the use of credit enhancements and loan guarantees it would be premature to speculate about any final framework or parameters of a potential program," an FDIC representative said.
       

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