Home Loan Wholesale

The federal government may start guaranteeing mortgage loans to persuade mortgage lenders to ease the monthly financial burden on struggling homeowners, Federal Deposit Insurance Corp. (FDIC) Chairman Sheila C. Bair said yesterday.

The proposal, presented to the Senate Banking Committee, represents the most detailed idea yet on how the $700 billion federal rescue package might directly address the blight of foreclosures sweeping the nation.  In the month of August, over 9,800 homes entered foreclosure every day,” Sen. Robert Menendez (D-N.J.) said. “If this statistic was that there were over 9,800 Wall Street executives that lost their jobs every day in August, we would have ended this a long time ago.”

The predicament facing borrowers is underscored by increasingly bleak foreclosure statistics. The firm RealtyTrac reported yesterday that there were 765,558 foreclosure filings in the third quarter, up 71 percent from the third quarter of 2007.  Sen. Christopher J. Dodd (D-Conn.), who chairs the Banking Committee, said he was encouraged after he spoke with Treasury Secretary Henry M. Paulson Jr. yesterday morning that Paulson wanted to provide some form of homeowner assistance.

Bair’s loan guarantee plan is still being discussed by Treasury Department officials. Treasury officials who are leading the rescue effort have declined to say whether they would move forward with it, how much it would cost or even when they would make a decision

Under the program proposed by Bair, a FHA mortgage lender would get a government guarantee that troubled loans would be repaid. In exchange, the lender would be required to significantly drop the interest rate, reduce the principal or extend the life of the affected loans.

Banks would apply to the FDIC to participate. A loan would be eligible for new terms if the borrower’s income is high enough to meet the revised schedule of payments.  Source: Washington Post