Obama proposes to raid pension funds to bail out banks
The banks would receive less credit if they reduce balances for loans packaged in bonds or by reducing monthly payments through cuts in borrowers’ interest rates. In one scenario, the banks would get about 50 cents of credit for every $1 of reduced mortgage principal in home loans used to back bonds. In another scenario, balances on loans held on the banks’ books that are cut in the first year of the deal would receive $1.25 credit. This means, under certain circumstances, the aid to homeowners would be less than the aggregate size of the settlement, people familiar with the matter said.
Investors in US home mortgage bonds may have to swallow significant losses as part of the deal, people familiar with the matter have said. Sherrod Brown, an Ohio Democratic senator, sent a letter to negotiators this week urging them not to allow the banks to pass on the cost of the settlement to pension funds and other investors.