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Washington: The Way Forward - Housing

Probably the biggest issue facing the new president is the housing crisis. And right now the subject is sparking some controversy.

Although the FDIC presented a well-received plan in October, published reports suggest it encountered some serious resistance from the Bush administration.

"Right now we have a crisis in that the foreclosure problem is getting worse. We had 1.5 million foreclosures last year and we’re looking at more than 2 million this year," explains FDIC Chief Economist Richard Brown on Fast Money.

Foreclosures increase the supply of homes on the market. As supply increases prices drop. Many believe the way to relieve the downward pressure on price is to keep people in their homes.

Under the FDIC plan, the government would use some of the bailout money to help people on the brink of foreclosure. Essentially, the money would be used to offset losses that are created by reducing interest rates and lowering the home owners monthly payments. (Remember, the party holding the mortgage – or making the loan – would be the loser under this scenario.)

The pushback from the Bush White House stems from a belief that people might actually opt for foreclosure believing they’ll get a better deal.

"The question is how to minimize the losses going forward. The default process of foreclosing on every defaulted loans isn’t working. It’s making the trouble worse not better. The answer is making those loans more affordable," explains Brown.

As you might remember JP Morgan Chase announced that it will make its own contribution to stemming the tide of foreclosures sweeping the country by modifying around $70 billion of its owned mortgages that are in or nearing default.

The bank's efforts will focus on restructuring loans for borrowers who are at risk of foreclosure and it has placed a 90 day moratorium on all foreclosures in order to put guidelines for its program in place. The company will hire and train an estimate 300 additional loan counselors (it currently employs about 2,500) and open two dozen new regional counseling centers.

The company has targeted 400,000 families for the rescue program. This is in addition to what it claims are 250,000 families which have already been helped in the earlier restructure of some $40 billion in loans.

We'll be watching.

To hear our entire interview with FDIC Chief Economist Richard Brown please watch the video.


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