Bank regulator Bair supports homeowner aid plan

WASHINGTON (Reuters) - Simply modifying troubled loans will not resolve the current U.S. housing crisis, a leading bank regulator told lawmakers on Wednesday, adding that a government backstop for troubled loans is needed.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said she supports a plan to expand the Federal Housing Administration in order to soak up more troubled loans.

"Loan modifications were never intended to be the sole solution to the problems in the mortgage market," she told the House Financial Services Committee, according to her written statement. "It is appropriate that policy-makers carefully consider additional tools."

Bair, who oversees the nation's deposit insurance fund, said speculators who helped fuel an overheated housing market should now help bail out troubled borrowers.

"Market participants who benefited most in recent years from many of the practices that have caused the current market problems, should bear a significant portion of the cost of resolving these issues," she said in her prepared remarks.

A plan sponsored by Rep. Barney Frank, who chairs the Financial Services Committee, would coax lenders into writing off some mortgage debt with the promise of a government guarantee on mortgage payments.

(Reporting by Patrick Rucker, Editing by Andrea Ricci)