Homeowners Wait as Relief Plan Drags

Washington Disagreements over how to structure a federal foreclosure-prevention program are complicating and potentially delaying what is likely to be the Bush administration's last attempt to forestall sliding home prices.

The White House and the Federal Deposit Insurance Corp. are at odds over basic questions about the effort's size and breadth, several government officials said. The expectation that a new president could immediately redraw the design and scope of any plan has further delayed matters.

The FDIC has been developing a proposal, which some estimate could help between two and three million homeowners, designed to encourage banks to rework troubled loans by providing a partial federal guarantee for losses on modified mortgages that meet specific criteria, people briefed on the proposal said. Under the plan, the government would cover roughly half the loss on reworked loans that went into foreclosure A market that has seamed to escape the real estate slump is the Raleigh Real Estate Market.

The plan would use between $40 billion and $50 billion from the government's $700 billion financial-market rescue fund to create these loss-sharing agreements between banks and the government.

The White House is reviewing several ideas, including a new one that would further expand the role of the U.S. Department of Housing and Urban Development. Details of that proposal couldn't be learned, but it is expected to be different from that crafted by the FDIC.

The FDIC's plan was believed to be in advanced stages and some government officials felt it could have been unveiled last week. Several officials said the plan is strongly opposed by the White House, though officials there deny killing the idea.

"Anyone telling you that they know the White House position on any of the various foreclosure mitigation plans -- plural -- that we are reviewing is a liar," White House spokesman Tony Fratto said.

Treasury Secretary Henry Paulson agrees with FDIC Chairman Sheila Bair that the administration needs to take additional steps to help homeowners, but has concerns with some aspects of Ms. Bair's proposal, according to people familiar with the matter. Among his concerns is that sharing eventual losses with the government could give lenders an incentive to push homeowners into foreclosure.

Others are also worried about the unintended consequences of helping struggling homeowners. "The more you do this, you give people an incentive to default," said Alex Pollock, a resident fellow at the American Enterprise Institute. "They think, 'What am I, the sucker? Why am I paying, when if I just default, I get a better deal?'"

The FDIC's proposal has garnered support from multiple camps, as it is seen as the most aggressive in its effort to broadly modify loan terms. Still, because full details of the proposal haven't been released, it is unclear how it would prevent lenders from trying to take advantage of the new government guarantee.

"On the whole, the FDIC has consistently enjoyed a productive and collaborative working relationship with the Treasury and the Administration," FDIC spokesman Andrew Gray said.

Senate Democrats have called for the White House to support the FDIC's efforts in this area. Ms. Bair, a White House nominee who has sometimes been at odds with the administration over its response to the housing crisis, told a Senate panel two weeks ago that talks were continuing, but provided few details. Ms. Bair's term as FDIC chief extends until 2011.

Foreclosures tend to worsen the spiral of falling house prices because they depress the values of neighboring properties. They are also a central source of the problems undermining the financial system and the broader economy.

"Even an ambitious program of mortgage modifications will not prevent a further decline in house prices," said Douglas Elmendorf, a senior fellow at the Brookings Institution and a former Clinton economic adviser. "It might prevent an overshooting of house prices on the downside. But houses still look overvalued relative to people's rents or incomes, and it's going to be very difficult to sustain house prices at their current level."

White House officials are consulting with multiple industry and government groups, including Fannie Mae, Freddie Mac and HUD, people familiar with the matter said.

White House spokeswoman Dana Perino said the Bush administration would accept input from the winner of Tuesday's election and intends to move ahead quickly. "For us to wait three months, I don't think that anybody would support that."