Will the federal government start backing loan modification programs en masse?

We could see a program where the Federal Government encourages lenders to modify loans as soon as this week.

This morning, White House Economic Advisor Larry Summers was on ABC News talking with George Stephanopoulos about the Economic Stimulus Bill that should get passed this week and an excerpt from their conversation about loan modifications is below:

STEPHANOPOULOS: Let me ask about that financial overhaul. Originally, Secretary Geithner was supposed to give that speech tomorrow. Administration officials are telling me it’s now more likely on Tuesday?

SUMMERS: Yes, I think there’s a desire to keep the focus right now on the economic recovery program, which is so very, very important.

STEPHANOPOULOS: So Tuesday it is. Let me show what’s been reported so far about the elements, the broad-based elements of what are in the plan that you’ve been working on with Secretary Geithner: a proposal to insure banks against more losses, as has already been done with Citibank; some kind of a facility to purchase the toxic assets, although that may be done through trying to encourage private investors to buy up the toxic assets; injecting more capital into the banks; increased lending by the Federal Reserve; and, of course, foreclosure relief for homeowners.

Are those the basic, broad principles inside the plan?

SUMMERS: You know, I’m not going to get into previewing Secretary Geithner’s announcement, but I can tell you this: The focus is going to be on increasing the flow of credit and doing it with transparency, with accountability for those who receive support, and with a kind of consistency that, frankly, we haven’t seen so far.

So, yes, there will be support for banks so that they remain stable, are in a position to lend. There will be support for the credit markets more generally. And absolutely critically, there will be support and pressure that assures that these needless foreclosures are avoided and that government is acting aggressively to contain the damage in the housing markets.

STEPHANOPOULOS: So it’s probably $50 billion to $100 billion in the package to prevent these foreclosures?

SUMMERS: The president’s made clear that he’s very committed to foreclosures. I expect that it will be $50 billion or more that will be directed at providing support for the housing sector of our economy.

STEPHANOPOULOS: And there was a — a report in the New York Times yesterday that this plan would not require banks to start — to start lending or to lend more. Is that true?

SUMMERS: The program will have — I’m not — as I say, George, I’m not going to get into describing Secretary Geithner’s program…

STEPHANOPOULOS: But that’s a pretty fundamental point.

SUMMERS: But he will be — he will be proposing a program that will make certain that we are stabilizing this system and increasing credit — credit flows, because that’s got to be — that’s got to be the objective to increased credit flows.

From the Washington Post this morning:

“Geithner is likely to roll out a plan, worth $50 billion to $100 billion, to encourage the modification of mortgages for homeowners who are otherwise at risk of being foreclosed upon. It could be based loosely on a strategy for foreclosure relief engineered by FDIC Chairman Sheila C. Bair when the FDIC took control of the failed bank IndyMac last year. Extensive details of how the plan will work may not be complete by tomorrow’s speech, however.

“Institutions that get assistance will have to participate in loan modifications and meet other standards that we set,” Geithner told the House Democrats yesterday, the sources said.”

Is the Federal Government going to really spend $50-100 Billion on loan modification programs?

We should know for sure by Tuesday.