The US government and federal regulators are zeroing in on a proposal to provide mortgage guarantees to lenders that agree to restructure home loans to ensure affordable monthly payments.
The idea is loosely modelled on the loan restructuring programme that is being implemented by the Federal Deposit Insurance Corporation for borrowers at Indy-Mac, a failed bank taken over by regulators this year.
People familiar with the discussions say the proposed scheme would be less restrictive than a recently established refinancing programme run by the Federal Housing Administration under legislation designed by Congressional Democrats Barney Frank and Chris Dodd.
Under the plan, lenders willing to modify troubled loans so that the monthly payment was no more than a certain percentage of income – possibly the 38% figure used by the FDIC at IndyMac – would be able to apply to secure a guarantee from the government against some or all of the additional loss if the modified loan went into default.
Financial Times, The Times