FDIC's Bair: Hopeful for her mortgage plan

written by: Ronald D. Orol, Market Watch Dec. 2, 2008

WASHINGTON (MarketWatch) -- Federal Deposit Insurance Corporation chairwoman Sheila Bair said Tuesday she hopes the Obama administration will support a mortgage foreclosure mitigation plan she introduced last month.

"We're encouraged by the president-elect statement on foreclosure prevention," Bair said at a conference in Washington. "I'm hopeful that the future administration will find funding to launch it because we are behind the curve and falling behind every day."

Bair is seeking $24.4 billion of the federal government's $700 billion Troubled Asset Relief Program to modify loans. She argues that such a package is authorized under the Emergency Economic Stabilization Act approved by Congress and the Bush administration on Oct. 3, and contends the program could avert 1.5 million foreclosures while encouraging lending by mortgage servicers.

Bair expressed disappointment that Treasury Secretary Henry Paulson hasn't agreed to allocate TARP funds for the package, but she still was hopeful that he would implement it. "I don't know that he said he would oppose it," Bair said. "Paulson has said he thinks it's a good program but he doesn't want to fund it with TARP funds, but we think the authority is there under the statute."

On Monday, Paulson said he could support a new approach to mortgage foreclosure mitigation, but he didn't go so far as to back Bair's proposal. "We are continuing to examine potential foreclosure mitigation ideas that may be an appropriate and effective use of TARP resources," Paulson said. "We're continuing to work on it."

Paulson had previously expressed opposition to Bair's proposal, but his comments on Monday indicate he might be willing to change his mind. House Financial Services Committee chairman Barney Frank said last month that he continues to have discussions with Paulson on the Bair proposal.

Some regulatory observers speculated Paulson could authorize $2 billion of the funds made available by Congress as part of the Emergency Economic Stabilization Act passed Oct. 3 to implement the first part of Bair's program. Those securities would be used to pay an upfront servicer administration fee of $1000 for 2 million loans.

Bair is seeking to use another $22.4 billion as part of a loss sharing program between mortgage servicers or investors and the FDIC for loans that fail six months or longer after being modified.

Ronald D. Orol is a MarketWatch reporter, based in Washington.