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Ben S. Bernake, Chairman of the Federal Reserve, warned on Thursday that the soaring number of foreclosures threatened the economy. He then proposed some ideas — government-engineered loan modifications, and more taxpayer money to help people refinance.
At the Treasury Department, meanwhile, top officials continued to work on a plan to bolster the housing market by subsidizing 30-year home mortgages with rates as low as 4.5 percent — a level that home buyers have not seen since the early 1960s.
Since the financial crisis began last summer, both the Fed and the Treasury had focused almost exclusively on patching up the financial system — propping up banks, Wall Street firms, money market funds and issuers of commercial debt.
The new focus on helping individuals could create a bitter split between those who want to buy homes and those who already own them.
The cheap mortgages would be available only for people buying houses, not the roughly 50 million families that already have mortgages and would want to refinance at a lower rate. As a result, the plan offers no direct relief to the millions of people who face foreclosure because they took out exotic mortgages that they could not afford. Nor would the plan offer any benefit to people who have stayed current on their mortgages and would simply be interested in taking advantage of a lower. rate,
How does this plan compare to the FDIC plan. See next blog.
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