Help May Be On The Way For Homeowners

Many lawmakers who approved the $700 billion bailout for the financial industry are wondering if it does too much for banks and too little for homeowners facing foreclosure. Government officials handling the bailout told a Senate panel Thursday that they are working to help homeowners avoid foreclosure.

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STEVE INSKEEP, Host:

It's Morning Edition from NPR News. Good morning, I'm Steve Inskeep.

RENEE MONTAGNE, Host:

And I'm Renee Montagne. Ever since Congress authorized $700 billion to rescue the economy three weeks ago, some lawmakers have argued it does too much for the banks and too little for homeowners facing foreclosure. Yesterday, government officials handling the bailout told the Senate Banking Committee that more help for homeowners may be on the way. NPR's David Welna has the story.

DAVID WELNA: It's been anything but a smooth ride for the US economy since the bailout became law, but at the Senate Banking Committee yesterday, Neel Kashkari, whom Treasury secretary Henry Paulson's put in charge of the bailout, tried putting the best face on a worrisome situation.

MONTAGNE: We have seen numerous signs of improvement in our markets and in the confidence of our financial institutions. While there have been recent positive developments, our markets remain fragile.

WELNA: Banking committee chairman Christopher Dodd, who was a leading proponent of the bailout, had qualified praise for the moves Kashkari's team has made so far.

INSKEEP: Few have any doubt that those actions have forestalled the worst-case scenario of a complete seizure in the financial markets. Nevertheless, one cannot escape hard truths about these regulatory actions. They have largely addressed the symptoms of the credit crisis rather than its cause.

WELNA: And the cause, Dodd said, is the ongoing unresolved crisis of homes being foreclosed at a rate of 81 thousand last month alone and a million for the entire year. Dodd pointed to a nationwide poll showing a majority of Americans disapprove of the bailout's focus on the banking industry.

INSKEEP: Doing more for homeowners is the one policy solution that a majority of those Americans said they support. If there were ever a time that demanded that we think anew, this is it.

WELNA: Congress did set up a voluntary program in July aimed at rescuing troubled mortgages. The Treasury's Kashkari said banks and homeowners have responded to a certain extent.

MONTAGNE: Industry is now at a pace of around 200,000 workouts a month, which is a huge increase from where they were when we started, but we agree with you, it's not enough. We need to do more.

WELNA: That was the same conclusion reached by another witness, Federal Deposit Insurance Corporation director Sheila Bair.

MONTAGNE: Everyone agrees that more needs to be done for homeowners. We need to prevent unnecessary foreclosures and we need to modify loans in a much faster pace.

WELNA: Bair told the panel one big reason banks had been reluctant to rewrite the terms of many mortgages is that their borrowers can continue to be bad credit risks.

MONTAGNE: So once they modify the loan, what happens if the borrower still defaults on payments subsequently and then they have to try to liquidate and the losses are greater. So I think that is one area where greater certainty could be provided would make the economic decision to modify a lot more powerful if not irresistible.

WELNA: And the way to provide greater certainty, Bair said, is to use some of the bailout money to give loan guarantees to those banks that revise the terms of mortgages. She noted that the bailout legislation actually has a provision in it that allows federal authorities to make such loan guarantees. And she said treasury secretary Paulson is also very committed to enabling such a systematic modification of troubled loans. But bailout administrator Kashkari was cautious when Pennsylvania Democrat Bob Casey asked him if he supported going ahead with such a program.

MONTAGNE: We are looking at it very closely and working with our colleagues around the administration to understand the plan, understand how it would be implemented, what effect we think it would have and how it would interact with the other programs. And so it's something we're very seriously considering.

INSKEEP: When will we know the results of your serious consideration?

MONTAGNE: It's hard to give a specific date, Senator.

WELNA: Kashkari said he did not know if it would be days or weeks before a loan guarantee program could be implemented. But he added, it's something Treasury is very focused on right now. Banking chairman Dodd said he'd spoken earlier in the day with Treasury secretary Paulson and came away with the impression that Paulson was indeed determined to get such a program up and running.

INSKEEP: But I want you to go back, Mr. Assistant Secretary, and convey the reactions here about our determination to get this up is very important.

WELNA: Dodd said he expected to have further legislation aimed at stemming foreclosures either for the lame duck session following next month's election or for the new Congress that convenes in January. David, Welna, NPR News, the capital.

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