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Geithner's New Plan to Include Private Funding, GSE-led Mortgage Rescue

Treasury Secretary Timothy Geithner is expected to lay out the new administration's comprehensive Financial Stability and Recovery Plan on Tuesday, detailing how the government will use the remainder of the $700 billion bailout money, as well as additional programs it hopes will kick-start the U.S. economy.
Administration officials told the _""New York Times"":http://www.nytimes.com_ over the weekend that the revised bailout plan for the banking sector ""was likely to depend in part on the willingness of private investors other than banks — like hedge funds, private equity funds and perhaps even insurance companies — to buy the contaminating assets that wiped out the capital of many banks.""
According to the _Times_, government officials are counting on the profit potential to serve as incentive and create a compelling market for those ""bad"" bank assets. ""The government would guarantee a floor value, officials say, as a way to overcome investors’ reluctance to buy them,"" the _Times_ reported.
Commenting on the use of private capital to help bail out the banks, Larry Summers, a top economic aide to President Obama, told _""CNN"":http://www.cnn.com_, ""We want to get the private sector to take responsibility for a situation that in many ways was created in the private sector. If the government is going to be putting money at risk, we want to make sure somebody in the private sector is willing to take the same risk the taxpayers are being asked to take.""
Another piece of the plan that Geithner is expected to divulge on Tuesday centers on a mortgage aid program led by GSEs Fannie Mae and Freddie Mac - a program that would utilize between $50 billion and $100 billion of the remaining bailout fund to make mortgage payments more affordable for hundreds of thousands of at-risk homeowners.
Representatives from the Treasury Department, the Department of Housing and Urban Development (HUD), and the GSEs' regulator, the Federal Housing Finance Agency (FHFA), have been working to hash out new criteria to decide which homeowners are entitled to relief and new ways to persuade other mortgage companies to step up their home retention efforts in a meaningful way.
According to a _""Reuters"":http://www.reuters.com_ report, officials are now hoping to clear the red tape and rigid terms that have doomed recent mortgage relief efforts, without overburdening taxpayers with the funding costs. Details of the new plan are minimal right now, and even after Geithner's speech on Tuesday, it is expected to be a while before the details for such a proposal are ironed out. The plan, though, will likely revolve around Fannie and Freddie, and the money committed will be used to underwrite failing loans, industry sources told _Reuters_.
Geithner's unveiling of the administration's Financial Stability and Recovery Plan, originally scheduled for today, has been delayed because of the Senate's vote on the president's economic stimulus package. After working through the weekend to trim down the stimulus price tag, senators are expected to reach a yea or nay decision on the package sometime Monday or Tuesday.
Treasury Spokesman Isaac Baker told reporters in a statement released Monday morning that the administration was focused on working with Congress throughout the day to pass the economic stimulus bill in order to create the jobs and make the investments necessary to get the economy moving again. ""Secretary Geithner will postpone the release of the administration's Financial Stability and Recovery Plan until Tuesday to allow for that to happen,"" Baker said.
Baker added, ""The economic recovery plan is critical to stemming the tide of this economic crisis. But, it alone won't solve all the problems that led us here. We need to stabilize and repair our financial system to maintain the flow of credit that families and businesses depend on to keep our economy strong. The plan that Secretary Geithner lays out on Tuesday will achieve that goal.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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