The FDIC Loan Modification Plan

Posted on November 16, 2008. Filed under: Foreclosure Defense, Loan Modification | Tags: , |

By Jessica Holzer

WASHINGTON -(Dow Jones)- The Federal Deposit Insurance Corp. on Friday unveiled the details of its plan to modify more than two million troubled loans by the end of 2009 at a cost of $24.4 billion.

FDIC Chairman Sheila Bair has been a vocal advocate of the plan, which relies on using federal subsidies to spur more loan modifications. The White House has pushed back, however, unveiling its own approach earlier this week that doesn’t involve government funds.

Under the FDIC plan, the federal government would pay mortgage servicers $1,000 per modified loan and absorb up to 50% of the losses should the loan default again.

“A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale,” the FDIC said in a posting on its Web site that provided details of the plan.

The FDIC said it is prepared to serve as contractor for Treasury. It estimated that it could prevent 1.5 million foreclosures, assuming a re-default rate of 33%.

-Jessica Holzer, Dow Jones Newswires; 202-862-9228;

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