U.S. Sen. Dick Durbin, the second-highest ranking Senate Democrat, is pushing for the federal government to share losses on mortgage defaults to prod banks to aggressively prevent foreclosures.
"If something is not done and done quickly ... it is going to have a dramatic negative impact," Durbin said Thursday after a Senate subcommittee hearing in downtown Chicago.
Durbin took testimony from federal finance officials and Chicago area foreclosure experts in starting a process to put forward a national plan to curb the dramatic rise in foreclosures.
As part of that testimony, Illinois Attorney General Lisa Madigan reported that 90,000 foreclosures were expected in the state this year. Collar counties are seeing foreclosures rise between 14 percent and 41 percent, building on dramatic increases in 2007.
Madigan called for "very aggressive loan modification programs" that could help homeowners reduce interest rates, cut payments and even lower their principal.
Durbin singled out a plan touted by the Federal Deposit Insurance Corp. that would have the government share up to 50 percent of the loss in any default if the bank modified the loan to help the homeowner avoid foreclosure.
Michael Krimminger, an adviser to the FDIC chairman, said the plan could cost $24 billion and may prevent 1.5 million foreclosures.
Durbin said any solution will likely have to wait until after President-elect Barack Obama takes office on Jan. 20. Current Treasury Secretary Henry Paulson opposes the FDIC's proposal.
"There is a lot more that has to be done," Durbin said, " if we are going to stop this march of foreclosures."