Bonds News

FDIC's Bair says loan modifications working

CHICAGO, May 7 (Reuters) - Efforts at mortgage loan modification are having positive results, but their ultimate success will depend on the trajectory of the economy, Sheila Bair, chairman of the Federal Deposit Corp., said on Thursday.

“My sense is that it’s having an impact,” Bair said in answering questions after a speech to the Chicago Federal Reserve Bank’s annual bank structure conference.

But, “there’s obviously still distress in the mortgage market,” Bair said.

She added that most mortgage holders will stick to their commitments if monthly payments are brought down to affordable levels, even if they are still “under water” on the size of their mortgage versus their home.

But loan workouts are more difficult if the credit distress is driven by a life event such as the loss of a job rather than structural problems with the loan itself.

Bair said she would like to see the secondary mortgage market, a casualty of the financial crisis that hit in 2007, “come back in the right way” with “the right incentive structure.”

Commenting on the FDIC’s workload given the recent spate of bank failures, Bair said the agency had added 1,000 staff in the past and is still hiring. (Reporting by Ros Krasny, editing by Leslie Gevirtz)