WASHINGTON--A federal regulator on Wednesday urged more than 800 thrift institutions to suspend all foreclosures, while President Barack Obama's top economic officials develop plans to keep borrowers in their homes.
The Obama administration plans to spend $50 billion to combat foreclosures of owner-occupied, middle-class homes, but is divulging few details. An announcement of the administration's housing plans is expected in the coming weeks.
Testifying before House lawmakers on Wednesday, Treasury Secretary Timothy Geithner said the government would provide incentives to "try to induce economically sensible restructuring of mortgages," but offered no specifics.
More than 2 million American homeowners faced foreclosure proceedings last year, and analyst say that number could soar as high as 10 million in the coming years, depending on the severity of the recession.
Geithner and Shaun Donovan, the new secretary of the Department of Housing and Urban Development, met with officials from housing and other nonprofit groups, top bank executives and industry lobbyists Wednesday to hear proposals for how the new programs to fight foreclosures should be structured.
John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington, said he was encouraged by the proposals being considered, though the details remain vague.
Taylor was optimistic the new administration would agree to using government dollars to buy up mortgages, removing them from complex mortgage-linked securities and restructuring them at more affordable levels. He said support from government and industry officials for that idea was a "giant step forward" compared with opposition to such an approach by the Bush administration.
The Obama administration also is expected to back a push in Congress -- opposed by the mortgage industry -- to let bankruptcy judges alter the terms of primary home loans. Earlier this week, Obama said it "makes no sense" that judges are not allowed to do so. The mortgage industry argues that this prohibition allows lenders to charge lower rates.
Meanwhile, John Reich, director of the Office of Thrift Supervision, urged thrifts to suspend foreclosures. By doing so, thrifts "would be supporting the national imperative to combat the economic crisis," he said.
But cooperation with the request is voluntary. "We're urging them to do it, but we're not going to try to force anyone to comply," said agency spokesman William Ruberry. "We thought it was reasonable -- because the details (of the government's plans) are expected to be imminent."
Government-controlled mortgage finance companies Fannie Mae and Freddie Mac suspended foreclosure sales during the winter holidays and have halted evictions from foreclosed properties until next month.
Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in mortgages and other consumer loans -- making them particularly vulnerable to the housing downturn.
Some of the largest thrifts have collapsed over the past year. The failure of Seattle-based Washington Mutual Inc. in September was the largest bank collapse in U.S. history. IndyMac Bank, a Pasadena, Calif.-based thrift, failed last July in a prelude to the broader financial crisis that erupted in September.
The institutions regulated by the Office of Thrift Supervision range in size from small community banks to big institutions like ING Bank, part of Dutch financial giant ING Groep NV.
Thrifts are being closely examined by federal inspectors for signs of heavy exposure to declining markets, or troubled areas such as construction and real estate loans.
Twenty-five U.S. banks failed last year, far more than the previous five years combined, and nine banks have failed so far this year. It's expected that many more banks won't survive this year amid the pressures of tumbling home prices, rising mortgage foreclosures and tighter credit. Some may have to merge with other institutions.
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