FDIC Chairwoman Proposes Plan to Reduce Mortgage Payments for Delinquent Borrowers

[Nov 14, 2008.]

 

Another proposal has been floated for helping homeowners who are delinquent on monthly payments on their mortgages. Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair proposed a plan to reduce mortgage payments for delinquent homeowners to 31% of their monthly income, according to CNN Money. To qualify, people would need to be at least two months behind on their payments.

Under the plan, interest rates on those mortgages might be as low as 3% for five years. After that they would increase 1 percentage point annually until they reached the market rate. To aid homeowners, mortgage lenders could also extend the length of repayment to 40 years.

Some Mortgage Lenders Have Plans

The plan also would have the government share up to 50% of the losses on a mortgage if a borrower ended up in default despite being helped through the plan.

This proposal is aimed at helping about 2.2 million borrowers get new mortgage loans. IndyMac, Citigroup, and Bank of America are among the lenders that have already announced plans to aid homeowners who are delinquent on their mortgages.

Bair’s proposal to lower monthly payments on mortgages still has to be approved by the Treasury Department or Congress–-or wait for review by the Obama administration.

Some Positive Feedback

The proposal has been received favorably by some consumer advocates and officials. "Chairman Bair's proposal has the potential to have an impact of the size and scope necessary to get ahead of the foreclosure crisis and put the economy back on its moorings," John Taylor, head of the National Community Reinvestment Coalition, an association of more than 600 community-based organizations, told CNN Money.

However, there is an acknowledgement that homeowners who faithfully pay their mortgages each month might resent the help being given to delinquent homeowners. But Bair and other experts say that steps taken to keep homeowners out of foreclosure proceedings might help raise housing market values in the long run.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.