(Real) foreclosure help on the way for Plainfielders?

Will the federal government act to REALLY forestall foreclosures?

Whether or not Plainfield Assemblyman Jerry Green's 'Home Ownership Preservation Act', which languished in committee from its March 15th introduction until a couple of weeks ago (while thousands of New Jerseyans lost their homes through foreclosure), gets to be of real assistance to Jerseyans -- and Plainfielders in particular -- who are in trouble with their mortgages may soon become a moot point.

Both the Washington Post (see here) and the Los Angeles Times (see here) report today that a deal is near for the Federal government to encourage banks to rewrite the troubled loans (selection below from the WashPost) --

Under the program being discussed, banks or other lenders would agree to reduce the monthly payments of borrowers to a level they could afford. The payments could be reduced by lowering the interest rate, cutting the amount owed or extending the repayment period. The goal would be to help homeowners avert foreclosure.

In exchange, lenders who agree to do this would get a government guarantee that they would be compensated for a portion of any losses should borrowers default on the reconfigured loans.

But one rough patch is deciding who should qualify for the help --

One of the toughest issues facing negotiators is how to define which struggling homeowners should get a bailout. If the government guarantees relatively risky loans, it is more likely to face a steeper tab. So if the gap between a household's income and what it owes on a mortgage is large, for example, the government may shy away from guaranteeing the loan.

Aware that how they define homeowner eligibility could cause a political furor, negotiators have struggled to come up with parameters that would be considered fair, a banking industry source said.

The model being looked at closely is that devised by the FDIC's Sheila Bair for the IndyMac situation --

One model could be the program the FDIC created after it took over IndyMac, a bank that failed after having made billions of dollars in risky mortgage loans.

IndyMac works with any borrowers who are delinquent or in default on their loans or at risk of becoming delinquent. The goal is to change mortgage terms so borrowers must pay no more than 38 percent of their income to cover their mortgage costs, including principal, interest, taxes and insurance.

Under the IndyMac program, a homeowner is excluded if the costs of reducing the loan payments exceed the costs of simply foreclosing on the home.

Bair, a lifelong Republican and Bush appointee, is well-respected on by both Democrats and Republicans for her straightforward, no-nonsense, and decidedly non-ideological pragmatic approach.

I have seen and heard her in interviews and in Congressional testimony. She is a marvel -- informed, informative, unflappable, and...tough.

The buzz is that she is the motive force behind the deal, even though she is not taking any public credit. Just another reason she is so successful.

Wouldn't it be odd if a Bush Republican upstaged the Assemblyman's home ownership rescue effort?

Truth is truly stranger than fiction.

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• WashPost: "Treasury, FDIC near deal on mortgage aid"
• LA Times: "Federal backing would encourage restructuring of loans"
• Courier (10/14/08): "Subprime mortgage rescue fund: Safety net or disincentive?" -- Archived here.
  

-- Dan Damon

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