The Federal Deposit Insurance Corp. proposed Friday to spend $24 billion of the $700 billion bailout funds to help 1.5 million households avert foreclosure.

The FDIC would guarantee 2.2 million modified loans, mostly loans made to borrowers with weak credit or small down payments. Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable. Monthly payments wouldn’t total more than 31 percent of home owners’ pretax monthly income. Taxpayers will absorb half of the loss if a borrower defaults. Loan servicing companies will be paid $1,000 for each loan they modify.

The Treasury Department opposes the idea. Neel Kashkari, the Treasury Department’s assistant secretary for financial stability, says the financial bailout promised to ultimately earn taxpayers money. Bailing out home owners in the brink of foreclosure has no direct payoff for taxpayers, Kashkari says.

Source: The Associated Press, Alan Zibel (11/14/08)