It looks like FDIC chief Sheila Bair, who’s advocated the most aggressive form of government assistance to homeowners, may get to see her vision. See the stimulus bill is one of just at least three legs to the economic recovery stool. One other is a plan for the banks, and then there will be a plan to “fix” housing. Houses aren’t broken, but we like to keep our housing expensive in this country, especially when so many people have placed bets on home price appreciation.
Anyway, it sounds like Obama’s plan will be the Bair plan:
Bloomberg: The proposal to guarantee modified mortgages is a variation of an idea backed by the FDIC. The administration plans to spend as much as $100 billion of the second $350 billion instalment of the Treasury’s financial-bailout fund on home-loan initiatives.
Some 1.5 million foreclosures might be prevented this year in a program that would pay servicers $1,000 to modify a troubled loan by reducing the interest rate, forgiving a portion of the principal or extending the repayment plan, Bair has estimated. The government would then absorb as much as 50 per cent of any loss if the rewritten loan defaults again.
Can’t wait to hear how they spin that the taxpayer could make money (!) on this one.