FDIC says plan could help 1.5 million keep homes

WASHINGTON (AP) - The FDIC is proposing that $24 billion in government funding be used to help 1.5 million American households avoid foreclosure.

The FDIC posted the plan on its Web site two days after Treasury Secretary Henry Paulson rejected the idea of using money from the $700 billion bailout of the financial industry for such an effort.

The plan would guarantee more than 2 million modified loans through the end of next year. Those are mainly risky loans made to borrowers with weak credit or small down payments. Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable.

The FDIC says the backing will make the lending industry more willing to modify loans because taxpayers will absorb half of the losses if the borrower defaults again. Loan servicing companies, which collect and distribute mortgage payments, would be paid $1,000 for each loan modified.

The FDIC says even if a third of borrowers default again on their modified loans, 1.5 million homes would still be saved.

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