Loan Modification Programs Produce Positive Results, According to FDIC's Bair

Sheila Bair, the chairman of the Federal Deposit Corp has noted that the loan modification efforts are having positive results, but their ultimate success will most likely depend on the economy and mortgage market.

“My sense is that it’s having an impact,” … but “there is obviously still distress in the mortgage market” Bair said in answering questions after a speech to the Chicago Federal Reserve Bank’s annual bank structure conference.

According to Bair, most mortgage holders will continue making their monthly payments if they are brought down to the affordable level, regardless of whether they are in the upside-down mortgage scenario or not. Upside-down mortgage refers to a condition when a home value is lower than the mortgage owed on the property.

Loan workouts are traditionally more difficult to pursue if the credit distress is driven by a life event, such as loss of a job or disability, when compared to the workouts as a result of a structural problems with the loan itself.

Sheila Bair said she would like to see the secondary mortgage market “come back in the right way” with “the right incentive structure” after being a casualty of the financial crisis that started in 2007.

Bair said the agency had added 1,000 staff in the past and is still hiring, commenting on the FDIC’s workload during the recent spate of bank failures.

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