Bailout Authorizes Feds to Buy Deadbeat Mortgages, Reduce Interest and Principal at Taxpayers' Expense

By Terence P. Jeffrey | October 3, 2008 | 3:13 PM EDT

The $700 billion bailout bill passed by Congress today includes provisions that direct the Executive Branch of the federal government to lower the interest rates and forgive portions of the principal on the mortgages of people at risk of foreclosure.

( - The $700 billion bailout bill passed by Congress today includes provisions that authorize the Treasury Department and other federal agencies to buy deadbeat mortgages and lower their interest rates and principal at taxpayers' expense.

Section 109 of the bill is entitled “Foreclosure Mitigation Efforts.” It orders the secretary of the Treasury to “implement a plan that seeks to maximize assistance for homeowner.” It lists as means the secretary can use for doing this: “term extensions, rate reductions, principal write downs, increases in the proportion of loans within a trust or other structure allowed to be modified, or removal of other limitation on modifications.”
Section 110 of the bill is entitled “Assistance to Homeowners.”  It orders other federal agencies to ease the terms of mortgages the federal government purchases if the borrower is at risk of foreclosure.
It says:  “To the extent that the Federal property manager holds, owns, or controls mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Federal property manager shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.”
It specifically lists interest rate and principal reductions as tools federal agencies can use to keep people in homes they otherwise cannot afford.
“In the case of a residential mortgage loan, modifications made under paragraph (1) may include: (A) reduction in interest rates; (B) reduction of loan principal; and (C) other similar modifications.”