“You don’t have to be a financial wizard (or go on a TV show) to become a millionaire. As Rock finally learned, you just have to stop spending all your money and save.”
— FDIC chairman Sheila Bair, in Rock, Brock and the Savings Shock, a children’s book that she wrote in 2006. Bair’s book is about twin boys who responded to their Grandpa’s savings proposal in opposite ways. Brock saved. Rock spent. After Grandpa matched the boys’ savings dollar for dollar, Brock’s dough doubled and redoubled, from $1 to $512 in just 10 weeks. The book includes Bair’s six savings tricks for kids. Such as: Save 10% of your allowance every week. And if you save, ask your parents to give you a “savings bonus.”
Maybe struggling homeowners should be reading Bair’s book. Today she introduced a radical plan to reduce payments to 31% of gross monthly income for homeowners who are delinquent two months or more. To urge participation, the FDIC would pay loan processors $1,000 for each reworked loan; if a borrower defaults, the FDIC would share up to 50% of losses. Of 2.2 million homeowners who would receive new loans under this plan, 1.5 million would keep their homes, the FDIC estimates.
Bair wants the plan’s estimated cost, $24.4 billion, to come from the $700 billion bailout. House Democrats have spoken out in favor, but she’s yet to secure the support of Treasury Secretary Hank Paulson and the Bush administration, which has proposed less aggressive measures. On Tuesday, federal officials announced a mandatory program to modify delinquent mortgages owned or guaranteed by Freddie Mac
and Fannie Mae
. Meanwhile, JPMorgan Chase
and Bank of America
have announced plans to modify monthly mortgage payments to between 31% and 38% of income. — Jessica Shambora