New Anti-Foreclosure Plan Moving Forward

Looks like there has been some progress in the foreclosure prevention plan that FDIC Chairman Sheila Bair discussed at a recent hearing on Capitol Hill.

From the American Banker:

The government is moving closer to implementing a plan to guarantee 2 million to 3 million at-risk mortgages in return for an agreement from lenders to engage in systematic loan modifications....

Overall, the plan is expected to cost the government $40 billion to $50 billion; the money would come from the $700 billion Congress gave the Treasury as part of the massive rescue bill.

However, the program could guarantee much more than $40 billion to $50 billion of mortgages. The Treasury would guarantee loans that meet certain criteria in return for an agreement from lenders that the loans would be modified according to government standards. If a modification worked and the loan did not default, lenders would continue to own the mortgage. If the modification failed and the loan went into foreclosure, the Treasury would pay the lender a certain percentage of the loss. Details on exactly how this would work are still being discussed.