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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Treasury, FDIC Crafting Plan to Rework Millions of Mortgages

Officials with the Treasury and the Federal Deposit Insurance Corp. are crafting a plan under which the government would guarantee the mortgages of as many as 3 million homeowners now struggling to avoid foreclosure, according to three sources familiar with the discussions.

Under the program being discussed, the lender would agree to reduce borrowers’ monthly payments, for example by lowering the interest rate or principal of a mortgage loan, based on the homeowner’s ability to pay. These reconfigured loans could help homeowners avert foreclosure.

To attract financial institutions to the program, the government would then guarantee to repay the lender for a portion of its loss if the borrower defaulted on the reconfigured loan.

The mortgage guarantee program would vastly expand the role of the Treasury Department in helping homeowners, while at the same time ensuring some return for lenders.

It would cost between $40 billion and $50 billion, sources said.
The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

While Treasury and FDIC officials have reached an agreement on the principles of the program, the White House is resisting, according to the sources, who declined to be identified because the negotiations are ongoing.

--Peter Whoriskey, Zachary A. Goldfarb, Binyamin Appelbaum and David Cho

By Sara Goo  |  October 29, 2008; 3:18 PM ET
Categories:  The Ticker  
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Comments

Socialism!

Posted by: wharwood | October 29, 2008 3:35 PM | Report abuse

Everyone wants to reach into the bailout cookie jar at the expense of others.

At what point should I stop faithfully paying my mortgage so I can qualify for some free money?

Something is horribly wrong when people that pay their bills, play by the rules, and don't financially over-extend themselves are the ones penalized.

No reward for good behavior?

Posted by: clandestinetomcat | October 29, 2008 3:41 PM | Report abuse

When will Bush announce his job plan to employ 50 Million American Citizens with salaried jobs with full medical benefits so they can buy houses and riase families and afford to send their kids to college. If Bush doesn't do that then he's failed as a president; it's that simple. what about starting with building 100 more refineries.

Posted by: blakesouthwood | October 29, 2008 3:43 PM | Report abuse

I think that if these struggling folks get the financial support, that's fine. However, I believe it should be written into their new contracts that the amount of financial support they received must be paid back before they receive a huge gain down the road when they sell it in a bull market...which will undoubtedly return. Please? Am I the only one who thought of this?

Posted by: swatkins1 | October 29, 2008 3:45 PM | Report abuse

I'm starting to think that Ahmed Chalabi might be the second greatest con-man of the 21st Century. Responsible Americans just got taken for about $1 trillion.

$700 billion to banks so they can dole out bonuses and knock out those M&As they've been eyeing-up. I thought this was essential to "unfreeze" the credit markets. If this money hasn't been going to loans (and it hasn't), then how badly did the credit market need to be "unfrozen"? $700 billion worth of bad?

Now we have the FDIC "reconfiguring" loans for people that can't afford the mortgages they took out. Seriously? Talk about perverse incentives.

And what about the responsible majority who are footing the bill for this and amking the economy work? Other than a $1 trillion bill, exactly what do we get out of this? Artificially inflated home prices? The market needs to correct, and keeping people that can't afford a mortgage in that mortgage only draws out the process.

I once thought that people were crazy for saying just to distribute the $700 billion to the people directly. I don't know anymore. I can't see how that would have been any worse.

Posted by: dsk36 | October 29, 2008 3:54 PM | Report abuse

I agree with the bail out of homeowners. Both of our daughters are going to stop paying their mortgages in order to get the principle lowered.

I wonder how the government will determine how much homeowners can pay? Should my daughters take as much equity out of their home as possible not.

Posted by: txengr | October 29, 2008 3:56 PM | Report abuse

Good grief! Where will it end? Congress and Teasury Paulson. Just make sure that the big banks who already received and will receive the bail out money circulate that money to get the system working again, just as British has done! Do you not learn? We will not stomach another round of bailout scheme without making sure that it works as it's supposed to!

Posted by: pelohoki | October 29, 2008 3:58 PM | Report abuse

Swatkins1 - there is already a government program like you describe -- HUD's HOPE for homeowners (Michelle Singletary covered the program in a recent article here http://www.washingtonpost.com/wp-dyn/content/article/2008/10/18/AR2008101800189.html).
My question is why this new loan guarantee program wouldn't go through FHA, which already provides loan guarantees.

Posted by: greene11 | October 29, 2008 3:58 PM | Report abuse

In a lot of cases the mortgage broker was so anxious to get the fees for selling the homeowner on taking the mortgage that they lied and seriously violated Truth in Lending. As I understand it, most of the bad mortgages are like that. They should make the banks prove that they strictly complied with Truth in Lending or let a Federal judge rewrite the mortgage to the benefit of the homeowner.

Also, I agree that the homeowner should pay back the Federal government part or all of the profits from the house when the prices recover.

Posted by: StanKlein | October 29, 2008 4:06 PM | Report abuse

What's the FDIC Eye Plan going to do for homeowners?

Seriously WaPo, you're headlines and editors are really taking a dive.

Posted by: AngryLiberal | October 29, 2008 4:07 PM | Report abuse

WHEN is the FED going to actually incent people with good credit scores and cash to put down to buy??

No one will, and NO ONE wants to stay in these wayyyy overvalued homes because they are still completely over-valued!!


HOUSING PRICES CAN AND MUST CRASH--there is no way around it!!!

www.patrick.net

Posted by: misssymoto | October 29, 2008 4:09 PM | Report abuse

This is all about rewarding bad behavior, creating new moral hazards, and continuing to puff up an overpriced housing market. And, surprisingly, Barney Frank hasn't even set up shop as our new housing czar yet. Can't wait to see what happens then!...

Posted by: cocktails42 | October 29, 2008 4:21 PM | Report abuse

Why not let bankruptcy courts modify mortgages, just as they modify almost all other contracts? Bankruptcy courts had this power from 1978 or so until 1993, and the sky did not fall. This plan rewards the banks that knowingly made loans to people they knew couldn't afford them. The federal guarantee is worth a fortune. Bush is simply taking care of his donors.

Posted by: Garak | October 29, 2008 4:23 PM | Report abuse

This is stupid, why should I pay for this? Three million people bought houses they couldn't afford. So I have to make MY mortgage payment and THEIRS too? Why am I being punished for their mistakes?

Posted by: ZZim | October 29, 2008 4:26 PM | Report abuse

We are being completely ROBBED!!

http://www.fedupusa.org/

Posted by: misssymoto | October 29, 2008 4:37 PM | Report abuse

Great, now that millions of people have lost their home and what not, a rescue plan just before the election vote day to help McSame. This is either another empty promise, or one that won't happen til most of these people are through with bankruptcy.

Posted by: maphound | October 29, 2008 4:38 PM | Report abuse

clandestinetomcat:

"Virtue is it's own reward."

Posted by: citizenw | October 29, 2008 4:39 PM | Report abuse

People being foreclosed in many cases just cannot afford these houses. But why? A number of folks are just overburdened in debt. When the gov't allows banks to jump interest from 8% to 30% over a one day late penalty, that's a tremendous impact! Virtually double payments. Add to that utility bills have doubled under the guise of competition. it's a series of issues compounded over and over again.

Posted by: oknow1 | October 29, 2008 5:10 PM | Report abuse

Remember the bidding wars? People were stumbling over themselves to outbid other potential buyers. Now, after we see that it wasn't much of a bargain, the price that they used to drive the competition away is no longer the price they pay? Disgusting. People are getting the shaft and it is not those who are about to be rescued.

Posted by: john88 | October 29, 2008 5:49 PM | Report abuse

I wish the Treasury would buy me a sattelite TV dish. And ice cream.

Posted by: lloydyboy | October 30, 2008 6:16 AM | Report abuse

The comments to this entry are closed.

 
 
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