Banks may be required to offer interest rate relief as antidote to strapped homeowners. But it’session unclear who exercise volition qualify and if the plan would put a dent in foreclosures

By Moira Herbst

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The Federal Deposit Insurance Corp. and the Treasury Dept. are working on a major program to prevent widespread foreclosures that would include government guarantees of domestic circle mortgages.

The device would application $50 billion from the lately passed bailout package to provide as much as $500 billion to $600 billion in government guarantees on up to 3 million at-risk mortgages. It might call for banks and savings and loans to offer loans with lower interest rates during the term of a five-year date, while shifting to the government any put to hazard if the home doesn’t recover its full pledge value within that time.

Without giving details, FDIC Chairman Sheila Bair discussed the program onward Oct. 29 at an international deposit insurers’ conference in Arlington, Va. She said the agency has developed "a federal program to help more borrowers avoid foreclosure.…Such a framework is needed to qualify loans on a scale large sufficiency to have a major pack close."

Bair said discussions are ongoing with the Treasury Dept., according to wire reports. The proposal could be public as soon as Oct. 30, says a lobbyist deficient in proper respect with both elements of the plan and negotiations. However, a Treasury Dept. spokeswoman denied that a offer is ready. "That is simply inexact," said Treasury spokeswoman Jennifer Zuccarelli. "We are looking at a number of proposals on foreclosure prevention, boundary no one proposal has been decided concerning." Details of the digest the FDIC is pushing could modify as Treasury—which has authority to deal out greatest number facets of the banking bailout—evaluates it. The lobbyist said in that place may yet prove to be rubbing by the White House over the plan, as well.

A directory mortgage-relief program would be the government’s boldest move on behalf of homeowners since the subprime crisis began picking up steam last year. Bair made a similar proposal six months ago, but it was dismissed without much discussion. Until now, a Bush Administration plan that was voluntary for banks has failed to spur enough loan modifications and prevent foreclosures.

Still, critics say that the five-year loan form program could be putting off the not to be escaped for borrowers, and that the $50 billion committed to backing it up may not be enough to put a serious dent in the wave of foreclosures.

According to the lobbyist, the program would require banks, savings and loans, investment funds, hedge funds, and other holders of mortgages to restructure the loans based on a homeowner’s ability to pay decrease monthly mortgage payments. The government would guarantee a second loan on the domestic, so banks and other lenders would not lose any money in a mortgage state. The homeowner would get humiliate payments during the term of the five years. And if the homeowner defaulted and went into foreclosure anyway, the guidance would have to make good to whoever had issued the loan.