While Fighting Foreclosures FDIC Chief Comes in for Kudos and Brickbats

January 28th, 2009 | Tags: Foreclosure Notice

The chairperson of FDIC, Sheila Bair, has been fighting foreclosures but her methods have won for her simultaneously kudos as well as brickbats. A Republican, she was appointed to the post by President Bush. When FDIC took over the collapsed bank IndyMac Bair’s handling of the foreclosure problems of the bank brought her into focus. But many are thinking that she is more concerned about projecting her own image and publicity than anything else. Her efforts in the IndyMac issue have not brought about many results.

Many other efforts are stumbling. Last summer Congress granted $300 billion for foreclosure prevention so that 400,000 house owners would benefit. But there were too many conditions and strings attached so that few could avail of it. Only 200 could apply. Meanwhile pressure for help is mounting with increasing intensity.

Bair is suggesting an early aggressive line of approach to help millions of foreclosure victims. When IndyMac was taken over Bair kept putting pressure on the Treasury and the White house to use government funds to encourage lenders and servicing companies to modify the risky loans so as to reach out to sweeping numbers. She had hoped to help 1.5 million to avoid foreclosures that would simultaneously have stopped the market being flooded by foreclosed units. The cost was estimated to be $24 billion.

But critics in the Treasury and White House calculated the cost to be around $70 billion and alleged that FDIC was underestimating the number of defaults that would again happen after modification. According to reports coming in from Comptroller of the Currency more than half of the risky borrowers whose mortgage terms had been modified by banks like MorganChase, Citigroup and Bank of America were again defaulting in their payments. Bair pointed out that this indicated improper modifications.

Other critics say that all the plans are defective because they fail to distinguish between those borrowers who are genuinely at risk and those who might intentionally skip mortgage payments so as to qualify for loans. Another question being raised is how much impact this will really have on the general economy.

Tony Fratto, deputy press secretary of the White House said, “Every one of these programs seems like a great idea at first. Our concerns are that many of them pay off people who knowingly made bad decisions and lenders who created the sub-prime crisis. It’s unquestionable that rewarding those people lacks support among the American people”.