Last Friday the FDIC (Federal Deposit Insurance Corporation) was planning to help provide $24 billion in government funding to help 1.5 million American homeowners avoid foreclosure and keep their homes. The big question is: where will all the money come from? This is where the discussion begins, as FDIC officials want to use part of the $700 billion bailout of the financial industry to pay for it, while the Treasury Department is opposed to that idea.
The original $700 billion plan was designed to make investments, with the hope of seeing returns in the future. The presidential administration is opposed to the idea of this bailout through the FDIC, so Congressional Democrats might have to take up the FDIC's plan upon their return this week. On another note, this could make way for a new foreclosure prevention initiative in January, once the new administration takes office. Some felt that last Friday's hearing ignored Congress' viewpoint and, in turn, was slighting homeowners facing foreclosure. Others felt that Congress' focus was in the right place.
Posted on its website last Friday, the FDIC states that it would guarantee 2.2 million modified home loans through the end of next year. Borrowers could get a reduced interest rate or longer loan terms to help make their payments more manageable and affordable. It is the FDIC's opinion that this new monetary support will help assure the lending industry's willingness to modify existing home loans. Under the FDIC's plan, homeowners' monthly payments shouldn't exceed 31 percent of the homeowners' pretax monthly income. There is hope that this plan will apply to an estimated 4.4 million loans likely to become delinquent though next year; however, it excludes loans held by Fannie Mae and Freddie Mac, which last Tuesday implemented their own modified loan program.