FDIC Home Ownership Preservation Loan Proposal

The FDIC has recently proposed that Congress allow the Treasury Department to make loans to borrowers with unaffordable mortgages to pay down up to 20% of principal, with the repayment and financing costs to be borne by mortgage investors and borrowers in an effort to stabilize mortgage and home prices and reduce foreclosures.

Under the proposal, borrowers would have to repay their restructure mortgage and the loan made under the program.  Mortgage investors would pay Treasury's financing costs and agree to certain concessions on the mortgage.  Treasury would have a superior lien to the mortgage investor's interest for the amount of its loan from any proceeds.

Also, mortgages in the program would be restructured into fully-amortized, fixed rate loans for the balance of the original term and the new interest rate would be capped at Freddie's 30-year fixed rate.  A maximum 35% debt-to-income ratio for all housing related expeneses would have to be met, and prepayment penalties, deferred interest, or negative amortization would not be allowed.  For the first five years, interest due on the loans would be paid by the mortgage investors, and thereafter borrowers would begin repaying at fixed Treasury rates.  Servicers would be required to agree to period special audits by bank regulators.

To fund the program, Treasury would offer $50 billion in public debt, which Treasury believes would fund modifications of approximately 1,000,000 loans.

The program would apply o those owner-occupied residential loans that had front-end debt-to-income ratios that exceeded 40% at origination, are below the FHA conforrming loan limit and were originated between January 1, 2003 and June 30, 2007.

For further information, contact Allyn Dixon at 515.246.4520.