The head of the FDIC, Sheila Bair, has come up with a sensible plan to help stop foreclosures. Bair is going to be asking lenders to cut the principle on $45 billion dollars in mortgages acquired from seized banks. Under the average loss sharing agreement the FDIC pays as much as 80% of losses on residential mortgages while the lender acquiring the mortgage from the failed bank is only responsible for 20%. "I think we’re going to gain by reducing re-default rates or delinquencies with people walking away,” Bair said. “We’ll obviously lose by providing loss-share for principal writedowns.
We’re looking now at whether we should provide some further loss sharing for principal write downs,” Bair said. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs".
Principle reduction hopefully would give homeowners a better reason to stay and not just walk away which results in foreclosure.
This should also help to stabilize housing prices.
Wednesday, December 9, 2009
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