Common sense from the FDIC chairman

The chairman of the Federal Deposit Insurance Corporation, Sheila Bair, explains how subprime lenders can prevent hundreds of thousands of adjustable-rate mortgages (ARMs) from going into default and foreclosure in the next year, with no bailout, no new regulation and minimal one-on-one renegotiation:

[R]estructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but can’t afford the reset payments. Convert these to fixed-rate loans at the starter rate.

This would be no bailout. These borrowers would still be required to make their monthly payments — at rates higher than what prime is today. Billions in savings would be generated by avoiding the administrative, legal, marketing and other costs of foreclosure, which can run to half or more of the loan amount. And avoiding foreclosure would protect neighboring properties and hasten the recovery of markets burdened by an excess supply of houses.

Way too simple. Right?

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One Response to Common sense from the FDIC chairman

  1. markjablonski says:

    Seems like a necessary project here, Bill. I commend your efforts to explore this issue. Best of luck, keep up the good work, all that jazz. I’ll plug your new endeavor in CSU’s newspaper next week.

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