WASHINGTON — The FDIC offered a proposal yesterday to help prevent foreclosures, asking Congress to authorize the Treasury Department to make loans to borrowers with unaffordable mortgages.
The Home Ownership Preservation plan would have Treasury pay down up to 20% of a loan's principal with the repayment and financing costs for these loans borne by mortgage investors and borrowers. The loans would be restructured into fully-amortized, fixed rate loans for the balance of the original loan term at the lower balance.
The restructured mortgages cannot exceed a debt-to-income ratio for all housing-related expenses greater than 35% percent of the borrower's verified current gross income, and prepayment penalties, deferred interest, or negative amortization are barred.
The new interest rate would be capped at Freddie Mac's 30-year fixed rate. The approach is scaleable, said FDIC, administratively simple, and will avoid unnecessary foreclosures to help stabilize mortgage and housing prices.
The FDIC suggests a Treasury public debt offering of $50 billion would be sufficient to fund
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