Government Could Take Up Risk for Troubled Loans

WASHINGTON -- The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government, the Wall Street Journal reported.

One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers, according to Journal reports.

According to a Reuters’ summary of the Journal’s report, the Credit Suisse plan would open the way for nearly 600,000 sub prime borrowers, many of whom are delinquent on their mortgages, to refinance into loans backed by the FHA.

The risk: If delinquent borrowers default on their refinanced loans, the federal government would have to absorb the loss. The fact that the plan is receiving serious consideration suggests the level of concern in Washington as housing problems worsen and early efforts by the Bush administration fall short, according to the Journal.

-- NYSSCPA.org News Staff

Posted on 2/14/08