Just three days ago, Hank Paulson was telling reporters that the foreclosure plan proposed by FDIC boss Sheila Bair was a nonstarter. “That foreclosure plan is a subsidy, or spending, program. The TARP was investment, not spending,” he said. This morning Bair basically flipped off Paulson by putting details of her plan up on the FDIC site and saying it should be paid for with the TARP money.
So what’s in Bair’s plan?
- Mortgage payments for delinquent borrowers would be capped at 31% of gross monthly income. (Note: if you’re a renter paying more than 31% of your income, you should have bought. Sucker!)
- The government will backstop the mortgages, taking up to 50% of the losses if a borrower who had been helped defaults anyway. Blair thinks only about 700,000 home owners will default after getting government assistance.
- The FDIC would pay servicers who process mortgages $1,000 for each re-worked loan.
Here’s how Blair explained the costs of the program, which she thinks would run around $24.4 billion. (Hey! That’s less than the government gave Citi!)
Do you think this will work?
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