This approach would increase the incentive of servicers to be aggressive in reducing monthly payments, which would improve the prospects for sustainability. Relative to the FDIC proposal, this plan would pose a greater operational burden on the government, which would be required to make payments to servicers for all modified loans, not just for loans that redefault.
The growth of household borrowing has moderated over recent months, reflecting the impact of higher key ECB interest rates since December 2005 and cooling housing markets in several parts of the euro area. However, the growth of loans to non-financial corporations has remained very robust.