Feds Warming to $40B Homeowner Bailout

Plan would give banks an incentive to rework troubled mortgages
By Jim O'Neill,  Newser User
Posted Oct 23, 2008 6:33 AM CDT
Federal Deposit Insurance Corp Chairwoman Sheila Bair.   (AP Photo/Haraz N. Ghanbari)
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(Newser) – Homeowners struggling to pay their mortgages would get help from the federal government under a $40 billion plan FDIC Chair Sheila Bair is expected to unveil today, reports the Wall Street Journal. Bair’s initiative, which would offer banks financial incentives to rework troubled mortgages into more affordable ones, is one of several ideas gaining traction in Washington to attack the epidemic of foreclosures that triggered the financial crisis.

Bair’s plan also encourages banks to renegotiate by giving the government a share of the risk on the new loans. Meanwhile the Treasury Department is considering using part of the $700 billion bailout to directly buy and renegotiate mortgages. Also under discussion are proposals to use Fannie Mae and Freddie Mac to lower mortgage rates, and to insure reworked loans through the FHA.