At a hearing today, FDIC Chairwoman Sheila Bair told the House Financial Services Committee that 1.5 million homeowners would be unable to make their mortgage payments when their loans reset in the coming months.
Undersecretary of Treasury for Domestic Finance Robert Steel said the government would continue to work with banks and lenders to restructure mortgages to avoid further defaults.
The problem however, is will a refinance be enough to save homeowners who have no business owning a home to begin with?
John Dugan, Comptroller of the Currency, expressed some positive news, noting that more borrowers are going with fixed-rate mortgages, while lenders are stepping up guidelines and requiring more thorough loan documentation.
So moving forward, there should be a decline in payment defaults because the pre-screening process is improving industry-wide.
Blair noted that the FDIC is monitoring banks exposed to subprime, but felt that the large part of the problem didn’t occur within the banks.
Good for the banks, bad for all the wholesale mortgage lenders who will shoulder the burden and likely shutter as a result.