How long will the housing/mortgage crisis last? Sheila Bair, chairman of the FDIC (Federal Deposit Insurance Corp.) expects the measures being taken to help the housing and credit industries will not reach their full effect until wellinto 2010. The FDIC recently proposed a comprehensive national program to ease the foreclosure blight.

Bair makes no promises that all foreclosures can be prevented. The FDIC foreclosure help plan will focus on helping homeowners who have a realistic chance of avoiding foreclosure.

Her estimate is that foreclosures would be reduced by up to one third under the new plan.

The harsh reality is that many borrowers are in default because they were not ready to be homeowners in the first place.

Lax lending guidelines and deceptive mortgage practices resulted in the creation of millions of loans that were destined to fail. There are loans in existence that no amount of reasonablemodification could save. Some people are in homes that they just cannot afford.

For those who qualify, the plan would reduce mortgage payments by either

• Reducing the interest rate, or

• Extending the loan term from 30 to 40 yearsTo compensate lenders, the government would offer

• $1,000 to the lender for each modification made, and

• Cover 50% of the loss if a borrower defaults on the loan after the modification

Chairman Bair estimates that the FDIC foreclosure help plan would save at least 1.5 million homes from foreclosure in 2009. The program will cost over $24 billion.

The FDIC proposes that the money to pay for the program should be made available from the $700 billion bail-out. The treasury department objects, arguing that the FDIC’s plan is a “spending” proposal, and that the bail-out is intended as an “investment”proposal.

Congressional democrats are pushing hard for approval of the FDIC’s foreclosure help plan.

If approved, guidelines for qualification will be announced. One issue is that net present value would have to be established. Net present value is calculated using a complex formula. It helps lenders determine whether they stand to make more of their money back through foreclosure or through loan modification. Borrowers must never lose sight of the fact that they promised to pay back the money the bank loaned them.

The lender has the right to decide case by case whether to modify or to foreclose.

The lender would forfeit that right if deceptive mortgage practices or loan servicing methods were used in the lenders dealings with you.