The Federal Deposit Insurance Corp. (FDIC) is creating a limited-scale pilot program that will determine the effectiveness of cutting the mortgage balances of borrowers who face foreclosure on underwater mortgages.
The Washington Post reports that the program is aimed at distressed borrowers whose loans were acquired from the assets of FDIC-seized failed banks. Under the terms of the program, eligible borrowers could receive reductions on their mortgage balances if they maintain their mortgage payments for an extended period.
‘We're thinking about it in terms of earned principal forgiveness,’ says Sheila C. Bair, FDIC chairwoman. ‘If you stay current on your mortgage, you would earn a principal reduction. It would only be for loans significantly underwater.’
The FDIC has not announced when the pilot program is expected to begin. Approximately 11 million homeowners are believed to have underwater mortgages.
SOURCE: Washington Post