Officials at the FDIC are butting heads with the Bush administration over the bailout once again, yesterday outlining a plan to prevent 1.5 million foreclosures in the coming year by having banks sharply reduce monthly payments on mortgages, the Washington Post reports. The government would guarantee half the losses should the banks lose money on modified loans, costing an estimated $24.4 billion to the government.
The Treasury opposes taking that money from the $700 bailout, but many economists say home prices won’t stabilize until foreclosures are reduced. The FDIC program would focus on subprime borrowers who are two months behind on payments, reducing their interest rates to as low as low as 3 percent. Beyond interest rates, the program could extend loan terms or even reduce the principal to help borrowers stay ahead of payments.