Why You Need to Understand the Latest Mortgage Solution Plan.

The Federal Deposit Insurance Corporation (the FDIC) came out with a plan to modify mortgages that deserves your attention because you'll be hearing more about it. As we've pointed out here and here, FDIC head Sheila Bair has been consistent in raising red flags over bank failures and the need to raise the amount the federal government backs your bank account (which was pumped up from $100K to $250K).

Here's why you care: The FDIC's new plan is going to get a lot more attention. If you watched Interim Asst. Treasury Secy. Neel Kashkari get grilled today by Congress, then you know Capitol Hill is frustrated. In fact you should read the Wall Street Journal's Michael Crittenden to understand the depth of Mr. Kashkari's grilling. But, what's important in this is that Capitol Hill is looking for a solution. Enter the FDIC. You can go to the FDIC's website and read the details for yourself, or read the Washington Post's Binyamin Appelbaum's report explaining what the proposal does. Most importantly, the FDIC is willing to share some of the loss if the loan defaults again after being modified - BUT, only if mortgage managers (ie the "servicer") come into their program.

Will that be enough to attract those that manage mortgages? Time will tell. But, you're going to be hearing lots more about the program, so better to understand it now.

Here's a thumbnail sketch that will help you get through the FDIC's proposal:

Who can apply? Home owners in trouble with a mortgage for a property that they live in (ie - owner-occupied).

What type of modification are we talking about? For the home owner, a modification as low as 31% of their monthly income.

What's in it for the mortgage manager/servicer? If they take part in the FDIC program, they'd get $1,000 per modified mortgage. Plus, the FDIC could share up to 50% of the loss should the loan default after being modified.

You can bet the details (and there are more details on both the FDIC website, and the Post report) are getting lots of looks tonight on Wall Street and Capitol Hill.