The Federal Deposit Insurance Corp. (FDIC) is proposing that Congress authorize the Treasury Department to make loans to borrowers with unaffordable mortgages to pay down up to 20% of their principal. The repayment and financing costs for these Home Ownership Preservation (HOP) loans would be borne by mortgage investors and borrowers.
This approach is scaleable and administratively simple, and will avoid unnecessary foreclosures to help stabilize mortgage and housing prices, the FDIC says, adding that the proposal is designed to result in no cost to the government.
A Treasury public debt offering of $50 billion would be sufficient to fund modifications of approximately 1 million loans that were ‘unsustainable at origination.’ Principal and interest costs are fully repaid.
Eligible mortgages for the HOP program are those for owner-occupied residences that are defined as unaffordable (featuring front-end debt-to-income ratios exceeding 40% at origination), below the Federal Housing Administration conforming loan limit, and originated between Jan. 1, 2003, and June 30, 2007, the FDIC adds.