The Bush administration is said to be considering a $500 billion government loan guarantee program that could provide incentives to modify up to 3 million troubled mortgages, at a potential taxpayer cost of $50 billion.

The Treasury Department and the Federal Deposit Insurance Corp. are reportedly negotiating the scope of such a plan, which could be carried out under the $700 billion troubled asset repurchase program (TARP).

The Bush administration is said to be considering a $500 billion government loan guarantee program that could provide lenders with the incentive to modify up to 3 million troubled mortgages, at a potential taxpayer cost of $50 billion.

The Treasury Department and the Federal Deposit Insurance Corp. are reportedly negotiating the scope of such a plan, which could be carried out under the $700 billion troubled asset repurchase program (TARP).

FDIC Chairwoman Sheila Bair dropped hints about such a program at a congressional hearing last week, saying the government could provide lenders with an incentive to modify the loans of troubled borrowers by agreeing to guarantee future payments

Bair said the Emergency Economic Stabilization Act, which created the $700 billion TARP program on Oct. 3, gives the Treasury the authority to use loan guarantees and credit enhancements to facilitate loan modifications in order to prevent foreclosures.

The government could establish standards for loan modifications and provide guarantees for loans meeting those standards, she said, and revealed that the FDIC was working "closely and creatively" with Treasury on such a program (see Inman News story).

The Washington Post reported today on details of the program. The Post quoted an FDIC spokesman as saying there have been "productive conversations" with Treasury about the use of credit enhancements and loan guarantees, but the final framework and parameters of the program had not been determined.

White House spokeswoman Dana Perino said today that the administration is analyzing several housing proposals with issues of fairness and protecting taxpayers in mind, and that no announcement is imminent.

"I’ve seen this happen in Washington before where people float out ideas in the media," Perino said. "What I can tell you is that we’re in the middle of analyzing several different proposals. If we find one that we think strikes the right notes and could meet all of those standards that we want to protect taxpayers, make sure that it’s also fair and that it would actually have an impact, then we would move forward and we would announce it. But we’re not ready to do that."

The Bush administration has concentrated much of its foreclosure prevention efforts on two Federal Housing Administration loan guarantee programs — FHASecure and Hope for Homeowners — created specifically to mitigate the impacts of rising loan delinquencies and defaults.

Critics have said the programs do not go far enough in helping troubled borrowers because many can’t qualify for a loan refinancing, or because lenders will not take the write-downs required by the Hope for Homeowners program.

The new guarantee program would require lenders to restructure mortgages based on a borrower’s ability to repay, Bloomberg news reported. One option envisioned is for lenders to allow lower monthly payments for five years before raising interest rates, Bloomberg reported, citing anonymous sources.

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