FDIC CHIEF - More Aggressive Approach to Homeowners Facing Foreclosure Needed!
BAILOUT PLAN WILL HELP STABILIZE FINANCIAL MARKETS, BUT DO LITTLE TO HELP DISTRESSED HOMEOWNERS, SHE CONTENDS!
Not everyone in the Bush Administration is completely on board with the recently-passed,$700 Billion Federal Bailout to aid Financial Institutions and Wall Street. The Chairman of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair, feels the Bailout does little to protect homeowners behind on their mortgage payments from losing their homes to foreclosure.
"Why there's been such a political focus on making sure we're not unduly helping borrowers but then we're providing all this massive assistance at the institutional level, I don't understand it," she said in an interview with the Wall Street Journal. "It's been a frustration for me."
Bair contends any rescue plan should focus more on the plight of distressed homeowners, whose higher-than-expected house payments due to rate resets have them over-extended in a slowing economy. Further, falling home equity often hampers many borrower's ability to refinance their loan to one more affordable. She continues that financial markets will not stabilize until home prices stop falling.
"I support all the measures; I've been a part of all the measures that have been taken," Bair continued. "But we're attacking it at the institution level as opposed to the borrower level, and it's the borrowers defaulting. That is what's causing the distress at the institution level. So why not tackle the borrower problem?"
Last April, Bair proposed that the U.S. Treasury Department offer loans to as many as one million homeowners potentially close to default, in an effort to stave off foreclosures. When troubled Sub-Prime and Alt-A ("No Documentation") lender IndyMac Bank of CA went was taken over by the FDIC last July, the agency immediately put its foreclosures on hold, instead opting to work out loan modifications for troubled homeowners.
The FDIC provides a key component in the government's Rescue Plan - they are temporarily removing the ceiling on Deposit Insurance for non-interest bearing accounts in banks, and guaranteeing around $1.4 Trillion in unsecured debt held by member banks.
William Isaac, former FDIC Chairman, agrees with Bair's assessment. "One of the things we need to do is slow down foreclosures," he said. "The chairman of the FDIC, who has to pick up a lot of the pieces when banks fail, is certainly entitled to make such a statement."
Those supporting the current administration strategy contend the main thrust of the rescue program should be to unfreeze the ability of financial markets to offer credit to businesses, consumers, and each other, and to restore confidence in the U.S. Banking System.
Said White House Spokesman Tony Fratto, "We just did a massive bill that does a lot for homeowners."
He was referring to the administration's housing package of this past summer, which affords the ability to re-finance into FHA loans to a portion of those in distress, subject to acceptance by the homeowner's lender. It also provides a First Time Homebuyer Tax Credit of $7,500, which must be repaid over 15 years.
For more, read Damian Paletta's story in today's Wall Street Journal.
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