With foreclosures mounting, Bush administration officials said Thursday that they were preparing to step up efforts to help struggling homeowners.
A senior policymaker told a Senate committee that the administration was working on a plan under which the government would offer to shoulder some of the losses on loans that are modified.
The insurance program could cost tens of billions of dollars, according to a person briefed on discussions about the plan, and would be run by the Treasury department under the $700-billion financial rescue Congress passed this month.
The remarks about the plan, made by Sheila Bair, chairman of the Federal Deposit Insurance Corp., came as a new report showed that foreclosure filings jumped 71 percent in the third quarter from a year earlier.
Bair, an ardent proponent of loan modifications, acknowledged that more needed to be done. "We are falling behind," Bair told the Senate Banking committee. "There has been some progress, but it's not been enough, and we need to act and we need to act quickly and we need to act dramatically."
Details of the plan are expected in the next week or two. Bair told senators that policymakers were contemplating creating standardized loan modification practices that would be used by mortgage servicing firms, which handle billing and collection on behalf of investors and banks. Loans modified under those principles would qualify for a partial federal guarantee. In other words, if homeowners defaulted on their loan again, part of the loss would be borne by the government.
Earlier this summer, Congress created another program, Hope for Homeowners, that also offers government guarantees, though under different terms. In that plan, when homeowners eventually sell their homes, they have to share any profits with the government.