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Consumers will feel rescue-plan effects

Whether you see it as an exorbitant taxpayer bailout of Wall Street and the banks or you're cheering from the sidelines, you can agree: The federal moves to rescue the mortgage system could have huge impacts on consumers.

Even the chief architect of the plans, Treasury Secretary Henry M. Paulson Jr., says the costs could run into the "hundreds of billions" of dollars. That inevitably means higher taxes somewhere down the line.

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On the other hand, Paulson has argued that the costs of not acting and allowing the global financial system to unravel day by day would ultimately cost taxpayers much more. The jury will be out on that issue for years.

But for consumers, especially those looking for a new mortgage or who are behind on their house payments, the plan could have immediate, life-changing effects.

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Here's why: A key part of Treasury's plan requires no approval from Congress - pumping billions of dollars of capital into the home-loan market through purchases of mortgage-backed securities. The Treasury is already committed to injecting $10 billion this month alone. .

Fannie Mae and Freddie Mac, now under conservatorship by the federal government, also have been directed to accelerate their investments in mortgage securities. The net effect should be to supply additional dollars for home buyers and refinancers, and to keep a damper on interest rates. So far, so good: Rates for 30-year fixed-rate loans are lower than 6 percent.

A second key impact of the rescue plan addresses the dire situations faced by an estimated 5 million homeowners who are behind on mortgage payments.

The new government-controlled entity that will purchase portfolios of troubled mortgage assets from lenders and bond investors is likely to take a different approach than the private sector to delinquent borrowers. Rather than the slow, loan-by-loan modification efforts typical of banks, the new government entity is likely to adopt a fix-the-problem-in-bulk approach advocated by the Federal Deposit Insurance Corp., the regulator and insurer of federally chartered banks.

The FDIC has decades of experience handling the acquired assets of failed banks including, most recently, the giant IndyMac Bank, which went under in July. IndyMac had 742,000 mortgages in its portfolio, 60,000 of which were 60 days delinquent or at some stage of foreclosure. One of the first actions the FDIC took after stepping in was to declare an immediate halt to all of IndyMac's foreclosure actions, pending a portfolio review.

The idea, according to FDIC Chairman Sheila C. Bair, was to whistle a timeout to "evaluate the problems and identify the best ways to maximize the value of the institution." Simply pushing through scheduled foreclosures would not achieve that goal.

A smarter strategy, according to Bair, was to work out better terms for as many borrowers as possible, turning unaffordable, delinquent mortgages into affordable loans at current income levels.

After an initial review of the 60,000 late borrowers in the IndyMac portfolio, FDIC deemed roughly 40,000 customers eligible for the loan-modification program.

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That sort of remedial strategy is what likely awaits strapped homeowners when the new federal rescue program kicks in. Call it what you want, but if you're one of those troubled borrowers, it could be a home saver.


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