The economy is a big bubble balanced on the back of a turtle.
The White House is considering a proposal to head off potentially millions more home foreclosures by using federal funds to buy up at-risk loans and then refinance them with more affordable terms.
Treasury Secretary Timothy Geithner and other Obama administration officials met Wednesday with a group of top bankers, community groups and financial industry representatives to discuss the plan.
So far, government efforts to prevent foreclosures have focused on pressing the lending industry to work with at-risk homeowners voluntarily and provide them with more affordable payment terms. But the new proposal signals a shift to a more direct government approach, according to John Taylor, president of the National Community Reinvestment Coalition, who attended the meeting with Geithner, Housing and Urban Development Secretary Shaun Donovan and other Obama administration officials.
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“What they heard from all segments of the industry is nearly universal support for going in and purchasing these loans,” said Taylor.
The proposal is one of several being discussed as the White House completes the details of its comprehensive plan to stabilize the financial system and limit a wave of new foreclosures expected over the next few years. Others include legislation to speed up loan modifications and efforts to make new mortgages more affordable.
Under the proposal, the government would draw on $50 billion in funds already approved for the financial bailout to buy up millions of mortgages at a discount. A $300,000 mortgage on a house now worth $200,000, for example, might be bought at a 30 percent discount.
The homeowner then would be able to refinance the smaller mortgage with lower monthly payments. The government could then sell the loan back to investors, freeing money to buy more loans.