Barr: Fannie & Freddie Bailout Bad for Taxpayers

Proponents of the new House plan say it should be palatable to critics of any perceived bailout because both investors and borrowers would take a loss. Banks and investors who hold those mortgages — often in complex mortgage securities — would be required to write-down their value, while homeowners would have their loans refinanced into more affordable ones.
It appears that a TARP was not enough to cover up the mortgage crisis. Endangered mortgage homeowners could not benefit from the kind of credit repair scores presented by Treasury Secretary Paulson’s Troubled Asset Relief Program. On the contrary, 1.5 million homeowners can obtain a sense of security when they’re facing foreclosure through the Federal Insurance Corp Chairman Sheila Bair’s new mortgage modification program. This straightforward system, a $24.4 billion program drawn from the $700 billion pool that TARP set up, will allow lenders a stipend of $1,000 per loan they renegotiate with financially stuck homeowners. In the event of default on a loan, the FDIC has pledged to take on up to 50 percent of the loss. While Paulson proclaims this as a mere spending that will only bankrupt the FDIC, many view Bair’s movement as a needed investment to maintain the liquidity in the mortgage industry. While this won’t solve all the problems immediately, it’s certainly a bold effort to help repair credit.