I know everyone out there, builders and Realtors included, constantly cry that it’s we in the media who are forever sounding unnecessary alarms in the housing market. Well, I don’t know that I can do much better than the Chairperson of the FDIC, Sheila Bair, who is telling a Senate Banking Committee panel today that the mortgage crisis has only just begun.
Bair says: “foreclosures continue at an unacceptably high level while true loan modifications are lagging”, but that’s just the tip of the iceberg. She also warns that in 2009, $600 billion worth of prime borrowers will see their “non-traditional” mortgages reset, and many won’t be able to find the cash.
Bair has been calling for a systematic, rather than individual, approach to loan modifications, but by warning about prime borrowers, it feels like she’s now bringing in the big guns.
At the same hearing, Senate Banking Committee Chairman Christopher Dodd is proposing a $10-20 billion bailout for homeowners--a “Home Owners Loan Corporation” that would buy mortgages at a deep discount from mortgage firms and banks. It would then modify the loans to more manageable payments. Dodd claims the money would come back to the government, perhaps at a profit, when the housing market recovers.
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