Top U.S. Banking Regulator Suggests Housing Bailout Plan

London–Writing Wednesday in the Financial Times, Sheila Bair, chairman of the Federal Deposit Insurance Corporation, proposed using low-cost government loans to help homeowners pay down pricey mortgages.The new government loans–which would be interest-free for the first five years–would fund up to 20 percent of the value of pre-existing mortgages. Lenders would in turn lower payments on the remainder of the mortgage to more affordable levels based on a percentage of the homeowner’s income and would pay a fee to balance out the government’s funding costs over the five-year initiation period.“Voluntary loan modifications have helped,” Bair said.” But it is not enough.”Bair said her plan lets the government “leverage its lower borrowing costs to significantly reduce foreclosures with no expansion of contingent liabilities and very little net cost” and would serve as an immediate solution to the housing slump because it doesn’t require property value assessments. “[The FHA solution] is going to take so much time [that] we need something that is more immediate,” she said.In addition, Bair said her plan would make life easier for servicers because there’d be no need to negotiate with second-lien mortgage owners, and taxpayer risk would be low because the government would be first in line to be paid if the homeowner defaulted.