FDIC Pushes for an Aggressive Foreclosure Relief Plan

The Federal Deposit Insurance Corp. (FDIC) has formally proposed a plan designed to help homeowners avoid foreclosure. The plan proposes incentives to loan service providers and offers government guarantees for losses incurred on modified loans.

The FDIC has been a strong advocate of efforts to alleviate the foreclosure crisis in the United States. The agency believes that the problem is a part of the financial crisis that keeps on spreading and undermines the housing market.

A relief plan is needed to abate the declining housing prices and stabilize the market. The FDIC relief plan in particular aims to protect 1.5 million homes until year-end of 2009. The program would cost the federal government about $24.4 billion.

Through its relief plan, the FDIC will offer incentives to loan service providers to modify mortgages on a sufficient scale to control the downward trend in housing prices and prevent the increase in the number of foreclosures.

The FDIC based its relief plan on loan modifications it has guaranteed for mortgages undertaken by the failed Pasadena, California-based IndyMac Federal Bank. The agency took over the bank’s operations in July 2008.

However, George W. Bush’s administration has opposed adopting the FDIC’s relief plan which could mean that it would have to take a back seat until newly elected President Barack Obama assumes the office in January 2009.

Treasury Department Secretary Henry Paulson clarified these proposals to abate foreclosures, particularly that of FDIC, would need substantial government subsidies which would not be taken from the financial industry’s $700 billion bailout fund. He said that aside from evaluating merits of any proposal, the financial means to achieve it should also be considered and justified.

Meanwhile, majority of Congressional Democrats have lauded the FDIC foreclosure relief plan. Even Obama has shown interest about taking aggressive approach to alleviate foreclosure.