Interest Rate Roundup

Wednesday, January 23, 2008

Dodd discusses a mortgage bailout plan

There's an interesting proposal from Connecticut Senator Christopher Dodd today. He is floating the idea of creating a "Federal Homeownership Preservation Corp.," which would buy the most troubled mortgages out there and offer new loans (with lower balances) to the borrowers stuck with them. Those new loans would be backed by Fannie and Freddie, or insured by the FHA. The agency would be capitalized with $10 billion to $20 billion. The idea: To prevent more foreclosures.

I don't have many more details as this proposal is very new. But I've said before I wouldn't be surprised to see some form of "Resolution Trust Corp."-type bailout eventually, given the magnitude of the mortgage and housing problems.

UPDATE: Some form of potential bond insurer bailout may also be in the works. More details from Bloomberg.

UPDATE2: More details from the FT:

"The largest US banks are under pressure from New York State insurance regulators to provide as much as $15bn in fresh capital to support struggling bond insurers, people familiar with the matter said.

"Eric Dinallo, New York insurance superintendent, has met executives at the banks and has strongly urged them to provide $5bn in immediate capital to support the bond insurers, the largest of which are MBIA and Ambac, and to ultimately commit up to $15bn. A spokesman for Mr Dinallo had no immediate comment.

"Concerns about the future of MBIA and Ambac grew last week when Fitch Ratings downgraded Ambac from triple-A status. The business model of both companies depends on them keeping their top level credit rating."


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