UPDATE: FDIC's Bair Repeats Call For Loan Modification Plan
Tuesday December 2nd, 2008 / 22h55
(Updates with more quotes from Bair) By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- Federal Deposit Insurance Corp. Chairman Sheila Bair made a strong pitch for her plan to modify shaky mortgages, saying the U.S. is "definitely behind the curve now" on preventing foreclosures because it didn't act sooner. "Until we get these unnecessary foreclosures under control, I do not see the light at the end of the tunnel, I really don't," Bair said Tuesday at an event in Washington sponsored by Fortune Magazine. With the worsening economy, Bair said the government needed urgently to step up efforts to prevent foreclosures. She cited some estimates that a 3 percentage point decline in foreclosures could boost consumer spending by roughly $40 billion to $50 billion. She argued that aggressive federal action could potentially reduce foreclosures by a third. Bair has advocated a plan, opposed by the White House, that would use funds from the Treasury's Troubled Asset Relief Program, or TARP, to spur more loan modifications. Under her proposal, the government would absorb a share of the losses from modified loans that later defaulted. Bair expressed regret that the proposal, which could help as many as 2 million borrowers at a cost of roughly $24 billion, hadn't gone anywhere. "We haven't been able to get as much traction as I would have hoped in Washington," she said. On Tuesday, Bair said she believes the Bush administration doesn't oppose her plan in concept, but is reluctant to use TARP funds for the effort. "I don't know if they've said they oppose it," she said. She said that, unlike Treasury Secretary Henry Paulson, the FDIC believes the use of TARP funds to encourage loan modifications is "very clearly contemplated" by the rescue legislation. She argued that it would be better to act on her plan now, but added that it wouldn't be too late if it was implemented during the first quarter of next year. "I am hopeful that the future or current administration, or some combination of both, will find the funding for this," she said. Bair, whose term ends in 2011, repeated that she is "quite content" at the helm of the FDIC. She disputed that Timothy Geithner's nomination as Treasury secretary in the new Obama administration would be an obstacle to her future at the FDIC. The two have reportedly tangled over the government's vast intervention to shore up the financial system. "I really respect him," Bair said. "There are always different perspectives in these discussions ... that's good." Bair said the next challenge facing the government is devising an "exit strategy" from the all the programs aimed at steadying the financial sector. Together, they threaten to "wrench all the risk from the system," she said. For the sake of the economy's long-term health, policy makers eventually must ensure they are not propping up weaker institutions. "We really need to think through the exit strategy," she said. -Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=fDjuAqlm0iAcgxiQvEfs%2Bg%3D%3D. You can use this link on the day this article is published and the following day.
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