FDIC to test underwater mortgage rescue

The Federal Deposit Insurance Corp. program would be for an estimated 11 million homeowners who are "underwater" -- owing more than their property is worth -- The Washington Post reported Friday.

Economists consider the borrowers, roughly 20 percent of all troubled mortgagees, are among the most vulnerable to foreclosure, and some industry officials expressed concern that they would simply walk away from their loans instead of working to rebuild equity.

Under the program, borrowers would be eligible for a reduction in their mortgage balances if they remain current on their payments over a long period. The track record of the borrowers would be compared with borrowers who had more traditional mortgage relief packages.

"We're thinking about it in terms of earned principal forgiveness," FDIC Chairwoman Sheila Bair said. "If you stay current on your mortgage, you would earn a principal reduction. It would only be for loans significantly underwater."

The program's pool of eligible homeowners would be small, applying only to loans acquired from a failed bank seized by the FDIC, less than 1 percent of currently outstanding mortgages, officials said
The initiative could begin later this year, FDIC officials said, but a date has not been selected.

Copyright 2010 United Press International.