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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Jim McMannis who wrote (115821)4/9/2008 11:16:18 AM
From: Peter VRead Replies (1) of 306849
 
I don't get how this works. Who is going to take the hit for the write down?

Is FHA going to pull its guarantee if the lender does not write down the loan? That's not much of a guarantee then. And if FHA won't pull the gurantee, why would you write it down if the FHA is going to insure the whole thing?

Brian Montgomery, head of the Federal Housing Administration, told lawmakers that his program would encourage lenders to erase some of a failing loan amount in order to receive a government guarantee of timely payments.

"We will permit and encourage lenders to voluntarily write down outstanding principal," Montgomery told the House Financial Services Committee, in his written statement.

Montgomery stressed that the he wanted to preserve the self-funding structure of FHA and not put taxpayers on the hook for failing loans. Unlike a proposal by Democratic lawmakers, the plan outlined by Montgomery would not required a big cash-infusion to get started.
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