The US banks have begun sweeping new plans to remodify millions of homeowners’ mortgages in an attempt to draw them away from arrears and repossession.
In the new proposed details, the FDIC says it will cover 50 per cent of losses incurred if that modified mortgage should subsequently re-default.
The FDIC will also pay providers and servicers $1,000 to help get mortgages down to as little as one third of the borrower’s income.
This plan is set to cost the US Government $24.4bn, which it will find from the $700bn bailout package. It says the plan can be applied to the estimated 1.4 million mortgage loans that were 60 days or more past due as of June 2008, plus an additional three million loans that are projected to become delinquent by year-end 2009.
The plans have yet to be accepted by either Treasury secretary Hank Paulson or President Bush.
The FDIC says: “Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow – around 4 per cent of seriously delinquent loans each month.
“It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.”