FDIC And Treasury Department Going Full Speed Ahead To Rescue Foreclosure Victims

Posted in Foreclosure Victims, November 4th, 2008 |

FDIC and the Treasury Department are going full speed ahead to rescue foreclosure victims but it is as yet not year what the preconditions are for qualification. Ultimately the question hangs in the air that even after all these rescue operations will even a dent be made in the foreclosure mess?

The plan includes government guarantee of the house mortgages. From the $700 billion chalked out for the rescue package, $50 billion will be set aside for this purpose of government guarantees that will cover 3 million mortgages that are threatened by foreclosures. Low interest loans will be offered for a five years. The risk will be that of the government if within that time the value of the mortgage is not recovered.

Sheila Bair, the chairperson of FDIC discussed the plan on 29th October at a conference in Arlington. She did not give any details. She said that what has been developed is “a federal program to help more borrowers avoid foreclosure. …Such a framework is needed to modify loans on a scale large enough to have a major impact.” She added that talks with the Treasury were still going on and that by October 30th the proposal would be disclosed.

However, Jennifer Zuccarelli of the Treasury Department said that this is not totally correct. She said, “We are looking at a number of proposals on foreclosure prevention, but not one proposal has been decided upon.” There could well be friction between the two entities that would require ironing out.

Mandatory relief plan would be the boldest and most effective the government could take to give relief to the foreclosure victims. Six months previously Bair had suggested similar plans but it was hardly given a passing thought. So far the Bush administration has been focusing on voluntary cooperation from the lenders to avoid foreclosures. Critics allege that the 5-year plan backed by $50 billion is not adequate enough even to scratch the surface of the crisis. They want the loans to be modified by the lenders taking into account the repaying ability of the lenders. This loan would be backed by the government so that the lenders did not have to undertake any risk. If the plan were stretched beyond five years then the lenders would have to make too great sacrifices. The conditions of the loans would be related not only to the income of the borrower but the correct valuation of the mortgaged house.