A Solution That Works

FDIC Chief Follows Last Week’s Comments That Bank Bailout Is ”Not Enough” with a Plan Similar to “A Solution That Works”

FDIC Chairman Sheila C. Bair testified on foreclosure before the Senate Committee on Banking, Housing and Urban Affairs  this morning. Here’s a snippet of Bair’s address:

Despite what we hear about the credit crisis and the problems facing banks, the bulk of the U.S. banking industry is healthy and remains well-capitalized. What we do have, however, is a liquidity problem. This problem is largely caused by uncertainty about the value of mortgage assets, which is making banks reluctant to lend to each other or lend to consumers and businesses.

In my testimony, I will detail recent actions by the FDIC to restore confidence in financial institutions. I also will discuss the FDIC’s continuing efforts to address the root cause of the current economic crisis – the problems caused by the failure to effectively deal with unaffordable loans and unnecessary foreclosures.

During the remainder of Bair’s address (you can read the full text here), she outlined a plan with some similarities to “A Solution That Works.”

Bair’s plan seems to be modeled after the FIDC’s restructuring of some 28,000 IndyMac mortgages after the government seized control of IndyMac last summer. That plan offered some homeowners interest rates as low as 3 percent and gradually increasing to 6.5 percent. Total payments were not to exceed 38 percent of the loaner’s gross income.