UPDATE: What’s Delaying the FDIC Plan?by Tim Manni
For the purposes of a follow up to a story we published on October 30, be sure to read this post from Calculated Risk and the accompanying Wall Street Journal article “Homeowners Wait as Relief Plan Drags.”
The FDIC’s plan to stem foreclosures is designed to convince lenders to rework certain mortgages with the guarantee that the government will cover part or most of any loss sustained from the restructured loan. The plan is expected to benefit between two and three million homeowners. Between $40-$50 billion would be utilized from the Treasury’s $700 billion rescue plan.
Why is the plan dragging? Reports are that the White House continues to seriously oppose the plan, but there are no reports that Washington has vetoed it completely.
Critics of the FDIC’s plan feel that these types of programs will not prevent home prices from declining further. Ambitiously, we hope the reason the White House is stalling on the FDIC’s plan is that it could become another incentive for diligent homeowners to act irresponsibly just to take advantage of federal funding — a course of action we have already begun to see.
So where is the happy medium? The headlines have already begun to read “Many Homeowners Owe More Than House Is Worth.” How can we develop programs to help struggling homeowners with out causing more of a problem? It seems smart borrowers are still waiting for their rescue plan.