FDIC head optimistic on TARP funds to modify loans

By Karey Wutkowski

BALTIMORE (Reuters) - The head of the Federal Deposit Insurance Corp said on Thursday she is optimistic the agency will be able to obtain money from the $700 billion bailout fund to launch its proposed home-loan modification program quickly.

Chairman Sheila Bair said she is still talking with U.S. Treasury Secretary Henry Paulson about the anti-foreclosure plan and is "hoping for a great result."

"I'm still talking with him and on the merits he's not opposed," Bair told Reuters after speaking at a Johns Hopkins University event.

Bair has proposed preventing about 1.5 million foreclosures under a plan that would reward participating lenders by sharing the cost of defaults on restructured loans.

The FDIC estimated the plan could cost the federal government $24.4 billion out of the $700 billion Troubled Asset Relief Program (TARP). The FDIC proposal has been met with resistance from the Treasury and the White House, which have said the TARP is supposed to be used for investing, not spending programs.

"I think we might be able to get some TARP money to launch this program very quickly," Bair said during the event.

Bair said she is also speaking with lawmakers and that Congress could give Treasury a directive to release the funds needed for the loan modification program.

House Financial Services Committee Chairman Barney Frank said on Tuesday that the Bush administration is likely to back off its opposition to using TARP funds for the FDIC plan and that a foreclosure reduction program could start "fairly soon."

Bair said that House Speaker Nancy Pelosi also supports releasing TARP funds for the FDIC loan modification plan.

Bair said the program needs to get under way quickly because foreclosures are a driving negative force on U.S. home prices.

"I'm afraid they're starting to overcorrect," Bair said about home prices.

MORE WORK NEEDED

She also said she expects U.S. bank failures to continue at a higher rate but that the "vast majority" of U.S. banks remain well-capitalized and safe and sound.

Nineteen U.S. banks have failed so far this year, compared with three banks in 2007.

Bair raised concerns about banks' continued reluctance to lend to each other and to consumers.