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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

President Obama's plan to stem the housing crisis has won both praise and criticism. He wants to use up to $275 billion to help more Americans hang on to their homes. We'll have the story of one family's financial struggle just ahead.

NORRIS: First, a look at the Obama mortgage plan: It calls for extensive refinancing and money to prompt banks to increase lending. I spoke today with Sheila Bair. She's the chair of the Federal Deposit Insurance Corporation, or FDIC. She rejected complaints that the plan benefits some people who helped cause the crisis.

Ms. SHEILA BAIR (Chairwoman, FDIC): We recognize that a lot of people are at fault here - mortgage brokers, lenders, mortgage owners, mortgage investors and borrowers themselves. But we think you need to get beyond that and recognize that unnecessary foreclosures are having a significant drag on the economy. They're hurting us all. And I think one of the good things - many good things -about the administration plan is that it really is one of shared responsibility. So the servicers, the mortgage investors, the borrowers as well as the government are all taking a piece of this and trying to contribute to the solution.

NORRIS: Now this is complicated stuff. And people who are on the brink of foreclosure or in financial trouble are mystified by, you know, by all of these numbers and all of these formulas. And so I'm going to ask you to try to break this kind of a simplest terms - in terms of the government trying to basically force lenders to renegotiate these terms downward. If they're using a carrot and a stick, in the most simple terms, could you explain to us what's the carrot and what's the stick?

Ms. BAIR: The carrot is agreeing to share some of the costs associated with lowering the payments - so that really is the carrot. The stick is really the administration's support for bankruptcy reform, which basically says that if the loan continues to be unaffordable and the borrower goes to bankruptcy, then a bankruptcy judge has the authority to do a cram-down, which is to reduce the principal amount on that loan to whatever the current appraised value is.

Norris: Is that a stick that you can wield only with congressional approval?

Ms. BAIR: Yes, that requires legislation.

NORRIS: And at this point, it looks like you're going to face stiff resistance from Republicans, especially in the House. They'll only agree to this if certain questions are answered. I'd like a chance to run some of these by you, if I could.

Ms. BAIR: Sure.

NORRIS: Should people who overstated their income or their assets to obtain their original mortgage, should they be eligible for taxpayer-funded assistance?

Ms. BAIR: Well, I think it's very difficult to try to do a forensic analysis of each and every one of these delinquent loans that may have been originated two or three years back - to find out whether income had been appropriately stated at that time and if it hadn't been appropriately stated. So going forward, we think it's important to do stringent income verification, stringent verification of the fact that folks are - live in their house, it is their primary residence.

NORRIS: Another line in the sand for the Republicans that would have to approve portions of this bill: Will the plan - or should the plan provide funds to banks who knowingly wrote bad mortgages?

Ms. BAIR: That's a hard question to answer. There're clearly a lot of loans that should not have been made. So we can say, yes, mistakes were made by borrowers, by lenders, by regulators. But to try to punish all of those parties now by foreclosing on more homes, putting more families out on the street, putting more houses onto the inventory creating more downward pressure on home prices - is that in our collective economic interest to do that? I just don't think it is.

NORRIS: And the other big question that the Republicans - particularly Republicans in the House - would raise is, what do you say to people who played by the rules? Those people say there's no reward for responsibility in the face of hardship.

Ms. BAIR: I am one of those borrowers. We have a 15-year fixed - we've always been current on our mortgage. But I really don't see how it helps me to take a punitive approach. And say, you know, the family down the street because they got a mortgage they couldn't afford, we should kick them out of their house. We should put that house on the market. That's going to put more downward pressure on home prices in my neighborhood. We need to get beyond that. We need to look at, going forward, what is in our collective economic best interest to do. And I think getting these loans restructured is the best thing to do for all of our collective economic interest.

NORRIS: Sheila Bair, thanks so much for speaking with us.

Ms. BAIR: You're welcome.

NORRIS: Sheila Bair is the chairwoman of the Federal Deposit Insurance Corporation, or the FDIC.

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