By Alejandro Lazo and Dina ElBoghdady
Washington Post Staff Writers
Thursday, May 1, 2008
Up to 1 million troubled homeowners would get emergency government loans to reduce their monthly mortgage payments under a plan laid out yesterday by one of the country's chief banking regulators.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., weighed into the debate over what to do about the nation's foreclosure problem, telling reporters that the Treasury Department should make up to $50 billion available for a "homeownership preservation" program.
Under Bair's plan, a homeowner could receive a loan to repay up to 20 percent of the principal of a mortgage and not have to pay interest on this government loan for five years.
"We think it's a workable plan. It's fairly administratively simple to put into place [and] can turn unaffordable mortgages into affordable mortgages," Bair said. "We think it's a viable solution, one that does not pose cost to the government."
Bair said her proposal would only apply to owner-occupied residences, not homes bought solely as investments. The size of the loan would depend in part on the borrower's income. The original lenders would have to agree that the government would be repaid first.
She said her plan was "complementary" to other foreclosure prevention measures on Capitol Hill. It would also require congressional approval.
A spokesman for the Treasury Department, however, said the focus should remain on efforts to modernize the Federal Housing Administration and other legislative efforts.
"We appreciate Chairman Bair's concerns and the work she has done," said Treasury spokesman John Rankin.
Bair's plan comes at a time when several government proposals to address the housing downturn are in play. A plan backed by Treasury would, among other things, permanently raise the loan limits for mortgages insured by the FHA. That legislation has passed the House and Senate, and a compromise needs to be reached between the two bills.
Meanwhile, Rep. Barney Frank (D-Mass.) and Sen. Christopher J. Dodd (D-Conn.), who both head key congressional committees, are pushing a plan that would allow the FHA to refinance $300 billion to $400 billion in mortgages.
Dodd, in a statement, welcomed Bair's proposal.
"She has put forward a constructive proposal that is worthy of Congress' serious consideration," Dodd said. "I look forward to further reviewing the details."
Judith Kennedy, president of the National Association of Affordable Housing Lenders, said Bair's plan "has tremendous advantages both in terms of simplicity and this time-out it gives to borrowers."
"The notion that for five years the borrower kind of gets to take a breather and then gets restructured at whatever the prevailing 30-year fixed rate is seems to be what we should have done four months ago," she said.