FDIC Chair Sheila Bair continues to advocate for a plan to help prevent foreclosure -- see this for more on why this is a good idea. The short version is that it will help improve the assets that are at the bottom of the financial crisis, and prevent a lot of the negative economic externalities that go along with foreclosure. The story I link to above makes clear that the voluntary measures aren’t working and that a new approach is needed.
Options include Bair's, which is offering to have the government share in the losses on any renegotiated loans, having the Treasury department buy mortgages directly at auction, and buying Mortgage Backed Securities and pressuring lenders underwriting those securities to renegotiate the terms. In practice, most likely all three options will be tried. All of them involve some loss of taxpayer money to either the lenders or the defaulting borrowers, which is problematic. But it's hard to see another way, short of eminent domain claims, to put a stop to foreclosures. And while it's debatable whether or not financial services firms are too big to fail or not, 4.3 million homeowners are set to foreclose in the next two years, and the consequences of that are too big to ignore.
--Tim Fernholz
