Wednesday, April 30, 2008

US watchdog presses for mortgage rescues

Go to Financial Times original
The US should fight the housing crisis by using low-cost government loans to help borrowers pay down unaffordable mortgages, Sheila Bair, one of the country’s top banking regulators, proposes.

Writing in the Financial Times on Wednesday, Ms Bair, chairman of the Federal Deposit Insurance Corporation, says the new government loans should cover up to 20 per cent of the value of the existing mortgages.

These loans, which would be interest-free for the first five years, would be used to pay down part of the existing mortgage. In return for the cash, lenders would reduce payments on the remaining part of the mortgage to affordable levels, defined as a proportion of income. They would also pay a fee to cover the government’s funding costs over the initial five-year period.

“Voluntary loan modifications have helped but it is not enough,” Ms Bair told the FT in an interview.

She said her plan allows the government “to leverage its lower borrowing costs to significantly reduce foreclosures with no expansion of contingent liabilities and very little net cost”.


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