FDIC Unveils Ambitious Loan Modification Plan
Sheila Bair, FDIC chairman unveiled her plans for wide-scale loan modifications on the mortgages serviced by Indymac Bank, the failed institution that the FDIC took over recently.
Bair has been pushing lenders to increase the percentage of loan modifications offered to borrowers who are behind on payments and at risk of foreclosure.
The major flaw in this plan is that it appears that they’re going to be offering these modifications “en masse.” Most of the major proponents of wide-scale modifications agree that they should be done on a case-by-case basis.
Moody’s already reported recently that 40% of subprime loans in their study that were modified in the first half of 2007 were already back in default. Many of those loan modifications were done in “en masse” fashion.
I recently wrote about the downside of these “prophylactic” loan modifications. As a result of my experiences in working with people who have had a legitimate hardship, which caused them to miss a few mortgage payments, I am decidedly AGAINST doing loan modifications prior to default.
Ms. Bair has a lot riding on the success of this program. I certainly wish her well- if you look at the statistics that have been coming out from a number of sources, the odds are severely against her.
In any event, it’s going to take at least a full year to get good data on this pilot program. And during that time, another 2 million +/- homeowners will have entered foreclosure.
Win, lose or draw, I commend Ms. Bair in her efforts to at least do SOMETHING, as opposed to a lot of the nonsense we’ve been seeing from other government officials.
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