FDIC Proposes a Mortgage Plan

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Sheila Bair head of The (FDIC) Federal Deposit Insurance Corp. has been championing a plan. Ms. Bair says the plan could help 2.2 million home owners with troubled mortgages keep their homes. MS. Bair is a republican appointed by Pres. Bush two years ago after serving many years at FDIC.

The plan is to modify the troubled mortgages by extending the time of the loan and reducing the interest rates so that payments do not exceed 31 % of monthly income. Under this plan the US Gov’t would guarantee the mainly risky( low down payments and/or weak credit) loans . Under this plan the taxpayers would absorb 1/2 the loss on modified loans if the borrower defaults on the modified loan. She says this should encourage mortgage houses to modify their troubled mortgages. In addition the mortgage house would be paid $1,000 for each modified loan. This p[an has been put into effect for 65,000 Indy-Mac homeownera and is part of the Citigroup bailout

Ms. Bair stated the FDIC expects 1/3(750,000) of the modified loans to default. This plan would save 1,500,000 homes from foreclosure at a cost to the US gov’t of $24 bil. Moody ’s Economy.com expects 10 mi.l foreclosures over the next 5 years.

The Treasury and the White House are fighting this plan Critics estimate the plan would cost $70 bil, Treasury Asst Secretary Neel Kashkart said "the $700 bil bailout plan was to make investments with the hope of getting the money back". He called the FDIC plan a gov’t spending program with no chance of repayment. No doubt there were homeowners who deliberately overbought. However most(personal opinion) homeowners bought in good faith. Many of these people were enticed by gov’t programs offering easy terms and were not protected by any gov’t oversight, federal or local. Many of these homeowners had little experience in real estate or home ownership. Diogenes believes the gov’t bears much of the responsibility for the foreclosure situation.---- more suggested solutions next