Twisted Titan
27th October 2010, 10:46 AM
Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, offered the proposal in a speech on Monday as a way to avoid lawsuits that might slow legitimate foreclosures.
“I fear that the litigation generated by this issue could ultimately be very damaging to our housing markets if it ends up unduly prolonging those foreclosures that are necessary and justified,” she told a housing conference in Washington, D.C.
Currently about a third of all home sold are foreclosed properties.
An aide to Bair said any “global solution” would require agreement from banks, mortgage investors and borrowers, as well as the 50 states Attorneys General who are investigating the paperwork scandal.
Under her proposal, banks would get legal protection from lawsuits in exchange for providing a struggling homeowner at least a 25% reduction in the monthly mortgage payment.
Bair said that in mortgage modifications the FDIC has been involved with that reduce monthly payments for homeowners by 10% to 40% cut “redefault” rates in half.
“We know from experience that reducing the monthly payment through modification raises the chance that the borrower will make good on the loan,” Bair said. “We also know that in too many instances, servicers have not made meaningful efforts to restructure loans for borrowers who have documented that they are in economic distress.”
Financial industry sources said the proposal would be difficult to implement – getting agreement among multiple parties would not be easy – and, with billions of dollars of souring mortgages involved, could be costly to banks.
A spokesman for the attorneys general declined to comment directly on Bair’s proposal.
But he said, “Our group of attorneys general and banking regulators is currently looking into the foreclosure problems that have come to light. In addition to our active inquiries with servicers and lending institutions, we are engaged in extensive dialogue. We will continue that dialogue with those inside and outside of our multistate group to ensure this process is both thorough and expeditious. We intend to be fair to consumers, lenders, and investors, and continued input and dialogue will help us attain that objective.”
“I fear that the litigation generated by this issue could ultimately be very damaging to our housing markets if it ends up unduly prolonging those foreclosures that are necessary and justified,” she told a housing conference in Washington, D.C.
Currently about a third of all home sold are foreclosed properties.
An aide to Bair said any “global solution” would require agreement from banks, mortgage investors and borrowers, as well as the 50 states Attorneys General who are investigating the paperwork scandal.
Under her proposal, banks would get legal protection from lawsuits in exchange for providing a struggling homeowner at least a 25% reduction in the monthly mortgage payment.
Bair said that in mortgage modifications the FDIC has been involved with that reduce monthly payments for homeowners by 10% to 40% cut “redefault” rates in half.
“We know from experience that reducing the monthly payment through modification raises the chance that the borrower will make good on the loan,” Bair said. “We also know that in too many instances, servicers have not made meaningful efforts to restructure loans for borrowers who have documented that they are in economic distress.”
Financial industry sources said the proposal would be difficult to implement – getting agreement among multiple parties would not be easy – and, with billions of dollars of souring mortgages involved, could be costly to banks.
A spokesman for the attorneys general declined to comment directly on Bair’s proposal.
But he said, “Our group of attorneys general and banking regulators is currently looking into the foreclosure problems that have come to light. In addition to our active inquiries with servicers and lending institutions, we are engaged in extensive dialogue. We will continue that dialogue with those inside and outside of our multistate group to ensure this process is both thorough and expeditious. We intend to be fair to consumers, lenders, and investors, and continued input and dialogue will help us attain that objective.”