FORECLOSURE FIGHTER: As chair of the Federal Deposit Insurance Corp., Sheila Bair's plan centers on promoting housing recovery by modifying troubled loans. Photo: Getty Images There is little evidence in Sheila Bair's downtown Washington, D.C. office—the typical chambers of a high-level bureaucrat—that she is sitting on a hot seat under the glare of the national spotlight. She has thrust herself into the debate over the housing and resultant economic crises, an uncommon position for the chair of the Federal Deposit Insurance Corp. (FDIC). After all, can anyone other than a banker name the person who held that position before Bair?

In fact, when she first accepted the job, Bair recalls being promised regular hours, no weekends, and that her “only headache would be whether Wal-Mart should own a bank.”

But today, all that has changed.

“Until we address the foreclosure problem at the borrower level, this downward cycle will continue,” says Bair in a mid-December interview with BIG BUILDER. “Mounting foreclosures continue to drive home depreciation—creating higher credit losses at FDIC-insured institutions and disruption in the broader economy.”

Bair's strategy, which she implemented at IndyMac Federal Bank in July shortly after the FDIC took it over, is to modify delinquent borrowers' mortgages to a housing cost-to-income ratio of 31 percent to 38 percent and lower mortgage interest rates to as low as 3 percent for five years; rates would then increase at an annual rate of 1 percent until they hit market rate. As of Dec. 1, 7,200 mortgages had been modified.

Bair believes this model could be taken to a national level. She would add a $1,000 incentive to servicers for each loan modification processed and hold the government responsible for sharing 50 percent of losses if a borrower were to redefault—a rate that the FDIC forecasts to be around 33 percent. As of press time, the plan called for a $24 billion expenditure to halt 1.5 million foreclosures in 2009.

Bair's plan has become something of a political football, tossed around like a wounded duck among supporters and detractors as they debate both its merits and efficacy.

The administration that appointed her has only recently begun to come around to accepting her plan. Most recently, Treasury Secretary Henry Paulson required Citigroup—as part of the federal bailout the company took—to implement Bair's program. However, just weeks before, he had refused to use Troubled Asset Relief Program (TARP) funds to aid Bair's program.

Democrats on the Hill also are lining up behind her efforts. Representatives Barney Frank (D-Mass.) and Maxine Waters (D-Calif.) have voiced support. Frank, who chairs the House Financial Services Committee, has said that any new proposals involving bail-out funds must include foreclosure prevention programs. In early December, Waters proposed the Systematic Foreclosure Prevention and Mortgage Modification Act of 2008, which called on Congress to implement Bair's loan modification program on a grander scale.

Bair has, however, apparently run afoul of President-elect Barack Obama's nominee to succeed Paulson as Treasury secretary, New York Federal Reserve president Timothy Geithner. Press accounts reported that Geithner hardly considers Bair a team player and speculates that Obama may seek to oust her, even though her term extends through 2011. Any such move might prove politically dangerous for the new administration, given the congressional Democrats' support of Bair.