Thursday December 11, 9:25 pm ET By Marcy Gordon, AP Business Writer
WASHINGTON (AP) -- The housing crisis will drag on at least until 2010, time needed for credit markets to revive and government rescue programs to make an impact, the head of the Federal Deposit Insurance Corp. said Thursday.
"We think we're going to have a tough year next year, and we're preparing for that," Bair said in an interview with The Associated Press. "But we'll work through it."
"By 2010 we'll be seeing the light at the end of the tunnel," Bair said.
She spoke as industry reports showed the number of U.S. homeowners dragged into the housing crisis fell in November to the lowest level since June as new state laws lengthened the foreclosure process.
More than 259,000 homes nationwide received at least one foreclosure-related notice last month, down 7 percent from October, but 28 percent higher than a year ago, according to RealtyTrac.
Bair stressed that the preponderance of U.S. banks and thrifts -- some 90 percent -- continue to be in strong financial condition. Twenty-three banks have failed so far this year amid the economic tumult, including Seattle-based thrift Washington Mutual Inc. in September, the biggest bank collapse in U.S. history. That compares with three failures for all of 2007 and is far more than in the previous five years combined.
The government's rescue plan includes hundreds of billions of dollars in direct federal investment in U.S. banks, as well as an FDIC program of three-year guarantees for as much as $1.4 trillion in new loans between banks.
The goal is to thaw the credit freeze gripping the economy and encourage banks to lend, Bair said.
But on action to provide struggling homeowners the ability to switch into affordable loans and help stanch the foreclosure wave, "we're still behind, very much behind, the curve," she added.
Debate on that issue has been intensifying as Democrats, including President-elect Barack Obama, insist that the government must use some of the $700 billion in bailout funds to halt rising foreclosures.
That also is the stance of Bair, an independent regulator and moderate Republican, who broke with the Bush administration in pushing her proposal to use $24 billion in government bailout funds to help 1.5 million borrowers avoid foreclosure by guaranteeing modified home loans through the end of next year.
Bair said she "wished a structured program would have gotten under way sooner" and expressed frustration several times during an hourlong interview about not having seen her plan prevail. But she said, "I think we do need to look forward. There are a lot of borrowers to help."
A change of posture could come with the new administration.
Bair said she has "a good working relationship" with Obama's designated nominee for Treasury secretary, New York Federal Reserve President Timothy Geithner, with whom she helped negotiate terms of the government's multibillion-dollar rescue of Citigroup Inc. in intense talks over the weekend before Thanksgiving.
Bair convinced Geithner and Treasury Secretary Henry Paulson in those discussions that Citigroup should be required to modify mortgages to help distressed homeowners as a condition for the government agreeing to shoulder hundreds of billions of dollars in possible losses at the bank.
"I have a lot of respect for him," Bair said of Geithner. "He's a very bright guy and he's got a real policy sense."
Senior Democrats in Congress have asked President George W. Bush to appoint Bair to a special position overseeing a government-wide effort to stem foreclosures.
Asked her view on such a "housing czar" position in the new Obama administration, Bair said Thursday, "I think if you create a job and give that person real power to do something, that might be a good thing."
She allowed, however, that it could be difficult to achieve and for that official to have an "overarching" function above the various federal agencies that deal with housing and mortgage issues, including the Treasury and the Federal Reserve.
"I am very happy right where I am," said Bair, whose term extends to 2011. "But I do want to accommodate the new administration in whatever capacity."
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