Subprime Mortgage Borrowers Need More Federal Aid

April 30 2008 - U.S. government efforts to overcome the subprime mortgage crisis should focus on people who wish to stay in their homes and pay off their mortgages, not on borrowers who see home ownership as a leveraged investment, said Sheila Bair, the chairman of the U.S. Federal Deposit Insurance Corp.

Writing in the Financial Times, Bair said the housing market can be stabilized only by programs aimed at turning unaffordable mortgages into affordable ones on a large scale.

While plans by Congress and the Bush administration to increase eligibility for loans guaranteed by the Federal Housing Administration are welcome, more is needed, she said.

Congress should initiate a publicly funded loan program under which the Treasury Department would make loans to borrowers with unaffordable mortgages to pay down as much as 20 percent of their principal, Bair said.

Participating lenders would be required to arrange mortgages so as to ensure affordable long-term payments and to subordinate their repossession rights to the government’s claims; Treasury loans would be delayed for five years and then amortized over the remaining mortgage periods, she added.

U.S. Subprime Borrowers Need More Federal Aid, FDIC Chief Says
by Alan Purkiss | Bloomberg