Treasury, FDIC Working on Plan to Help Distressed Homeowners with Mortgages

For those waiting to see if any of the $700 billion federal bailout fund would deal with rising numbers of foreclosures and homeowners with distressed mortgages, help could be on the way. Major news organizations have reported that the Treasury and Federal Deposit Insurance Corp. are working on a plan to have the government back mortgages of up to 3 million struggling homeowners who would get their mortgages lowered. The Washington Post reported that the plan, if approved, could cost between $40 billion and $50 billion, and would lower interest rates for homeowners in danger of foreclosure for up to five years. The goal is to encourage more mortgage servicing companies that have been reluctant to rework nearly $500 million in distressed mortgages because they fear the homeowners would default again or that investors in mortgages securities would file lawsuits, according to the New York Times. The plan, pushed most actively by FDIC Chairman Sheila Bair, would have the government agree to absorb half the losses if mortgage companies lowered the payments. The deal would only apply to homeowners who are determined to be able to afford the lower payments. Time reported that a second proposal would call for housing assistance programs currently run by the U.S. Department of Housing and Urban Development to be expanded. Officials had hoped to work out some kind of agreements on mortgage relief by Friday but the Time story noted it was becoming increasingly unlikely as friction increased between the FDIC and Treasury and the Federal Reserve. Meanwhile, White House press secretary Dana Perino fielded some questions during a Thursday morning press corps briefing about a potential bailout of the automotive industry. As reported Oct. 28 by CPN, General Motors Corp. CEO Rick Wagoner is seeking federal aid to help his struggling company, possibly as much as $10 billion. Asked whether the federal government was against bailing out the car manufacturers, Perino said most of the administration’s efforts would be focused on the Department of Energy’s $25 billion low-interest loan fund that’s intended to help carmakers retool their plants so they could make more energy efficient vehicles. Pressed further, Perino said helping out private industries was not something that President Bush ever wanted to do, but when faced with the worst financial crisis since the Great Depression he acted on the recommendations of Federal Reserve Chief Ben Bernanke and Treasury Secretary Henry Paulson in recommending the $700 billion bailout. “That doesn’t mean that we’re going to necessarily help any of the automakers. It doesn’t mean that we are or that we aren’t,” Perino said during the press briefing. “I think that where I would leave it is that Congress gave us the tools to be able to use the DOE regulations. We’re trying to get those done as quickly as possible. These things take a little bit of time….They’re highly technical and there’s a lot of caveats. If you look at the legislation, it laid out very specifically what the money could or could not be used for. And the automakers are well aware of that. “ Perino would not get into any specifics but added that “the Energy Department, the Treasury Department and the Commerce Department are keeping the president fully informed of their discussions with the automakers.”