WASHINGTON — President Obama met late Friday with top banking regulators to help hash out a plan for preventing foreclosures, including a national loan modification standard aimed at giving servicers a safe harbor from investor lawsuits.
Though Treasury Secretary Tim Geithner is scheduled to unveil the administration's plan for dealing with toxic assets at a press conference today, a detailed foreclosure plan is not expected until later in the week at the earliest.
Sources said Mr. Obama appeared personally at the White House meeting to emphasize how important the foreclosure plan is to his administration. Other participants included Federal Reserve Board Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair, Comptroller of the Currency John Dugan, and Federal Housing Finance Agency Director James Lockhart.
The regulators are expected to take the lead in writing guidelines that would establish a national standard for modifications. Fannie Mae and Freddie Mac are expected to play large roles in implementing the plan.
Mr. Geithner is expected to hold another meeting, along with Housing and Urban Development Secretary Shaun Donovan, with large banking companies Wednesday. The meeting is expected to include representatives from Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and several consumer advocate groups. The meeting is designed as an update on the plan.
Though the specifics are still being worked out, some observers are already raising concerns that the plan may not go far enough.
Regulatory guidelines are intended to help protect servicers from legal liability, but many observers said only legislation could establish a safe harbor.
"It helps, but I don't know if it completely assuages investor concerns about being sued," said Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc. "I think they'd much rather have a piece of legislation about a safe harbor."
Sources said the administration is planning to use roughly $50 billion from the Troubled Asset Relief Program for its foreclosure plan, which would be open to delinquent loans and those in danger of becoming delinquent. But policymakers are still weighing how to use that money. They are considering four options.
Under one idea, investors or servicers would be expected to reduce the cost of a troubled mortgage to a certain level. The government would partner with the investor or servicer to reduce the loan's cost to an even lower level to increase affordability further.
Another possible approach would call on the government to pay servicers a fee for completing a modification. The government-sponsored enterprises are already doing this. Fannie and Freddie pay servicers $800 for each modification they complete.
A third approach would follow recommendations from the FDIC. Through that program, the government would guarantee 50% of losses on loans modified by lenders according to standardized procedures.
The fourth option is for the government to provide incentives for borrowers to remain current in their loans. Those incentives could include direct payments to the borrower.
Numerous details still need to be worked out, including borrower criteria and how the program would be administered.
The Obama administration is deciding between the GSEs and the FDIC as choices to run the program.
Several observers said that the GSEs would be a better home.
"The GSEs have experience in managing trillions of dollars in mortgage assets and the FDIC doesn't have nearly that experience so I would think they would have more expertise," said Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC.
The GSEs announced their own streamlined modification plan in November. During the American Securitization Conference in Las Vegas on Monday, Mr. Lockhart said he is monitoring that program, even though more is needed.
"Foreclosure prevention activities have picked up, especially amongst the largest sellers/servicers and independent servicers, but much more needs to be done," he said.
"There will be no excuses going forward not to aggressively pursue standardized modifications to prevent foreclosures and lessen their negative impact on communities and the nation's economy."
Mr. Lockhart added that "we have a new approach that acknowledges the need for consistency in the treatment of borrowers."
