October 24, 2008
FDIC Chief Sheila Bair
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While Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have implemented plans to pump billions of dollars into the nation's banking system, Bair has been virtually alone among administration officials in making the case for addressing the nation's credit crisis at its source preventing more mortgages from going bad.
"We are behind the curve," Bair told the Senate Banking Committee on Wednesday. "We are falling behind. There has been some progress, but it's not been enough, and we need to act and we need to act quickly and we need to act dramatically."
To help struggling homeowners, Bair says the government needs to step in and assist lenders in modifying the terms of the loans. She told lawmakers that policymakers have drafted just such a plan and that it will be unveiled in the coming days.
Specifically, she said there should be a standardized manner in which loans are modified. Part of the problem thus far has been the manner in which these loans have been broken up and securitized. With a number of different entities owning a portion of each mortgage, it has been difficult to get agreement on altering the terms of the loans.
Realtors have complained that lenders have been uncooperative at times when "short sales" have been proposed as a way to sell a home before it goes into foreclosure. The reluctance, say many experts, is really the inability to get an agreement from all the parties.
Under the plan reportedly being drafted in Washington, the federal government would guarantee loans that were modified to help homeowners. If the homeowner was still unable to make payments and defaulted on the modified mortgage, the U.S. government would absorb at least a portion of the loss.
Despite efforts to provide homeowner relief, foreclosures continue to rise at a rapid rate in 2008. Though new foreclosures dipped in September because of moratoriums in a number of states, they were up 71 percent in the third quarter over the same period a year ago.
