• This is a rush transcript from "The Journal Editorial Report," March 7, 2009. This copy may not be in its final form and may be updated.

    PAUL GIGOT, FOX HOST: Up next, on "The Journal Editorial Report," the administration officially launches its foreclosure prevention program. Will the $275 billion plan finally put a floor under sinking home prices?

    Unemployment continues to rise, stocks continue to fall. After five week in office, has President Obama's policies become part of the problem.

    Democrats in Congress have a nasty surprise for two of first daughter's Sidwell schoolmates. We'll have the latest in the battle over school choice.

    "The Journal Editorial Report" begins right now.

    Welcome to "The Journal Editorial Report," I'm Paul Gigot.

    The Obama administration officially launched the Homeowner Affordability and Stability Plan this week, issuing guidelines to lenders and mortgage servicers on how to modify the loans on as many as nine million struggling homeowners. Will it stem the wave of foreclosures drowning the U.S. real estate market?

    Sheila Bair is the chairman of the FDIC and joins me from Washington.

    Chairman Bair, welcome.

    SHEILA BAIR, CHAIRWOMAN, FDIC: Hi Paul, thank you.

    GIGOT: The foreclosure mitigation plan, announced this week. Judging by the mail we get at the "Journal," a lot of Americans fear this may reward people who just borrowed too much money, more than they could afford or didn't even make honest claims on their mortgage, original mortgages. How can you assure viewers this plan won't reward that kind of behavior?

    BAIR: Right. It is restricted to owner-occupied property. It has to be the primary residence. The loan does — the borrowers, to qualify for the mortgage, have to document income. They have to provide information about their household budgets.

    So I think, as part of the modification process, the borrowers need to be validated as good faith home buyers who are using their home to live in not as an a leveraged investment.

    Clearly, no one wants to reward fraudulent behavior, so if there's a red flag, there might have been a fraudulent situation before, that would be taken into account under the program.

    But, I think it is difficult to try to go back. Some have suggested you have to go back several years and try to determine what the circumstances were when the loan was originally originated. I don't think that is practical.

    GIGOT: Why isn't that practical? Because some people did lie on their loans.

    BAIR: Well, some people did. If there's — I think a lot of it was brokers telling them, don't worry, we'll fill it out, or it doesn't matter, just put whatever you want. A lot of people didn't. I think there is — the certainly is the low-doc, no-doc loans. That was an open invitation for inappropriate behavior. Not everybody did that too. I think to paint everybody with the same brush and say all of you, we are going to make you rejustify yourself three years ago when this loan was originated, I don't think it is practical.

    So nobody wants to reward fraudulent behavior. And the FDIC is moving aggressively against mortgage fraud, especially third-party providers, some mortgage brokers, appraisers. There's been problems here, and our I.G. and our legal authorities we have as receivers for failed banks, we're very aggressively pursuing that kind of conduct. But to try to got back and rejustify every single loan in trouble now, I don't think is practical.

    GIGOT: What about those who scrimped and saved and paid their mortgage on time, and now they may not qualify under this program and say, hey, what about me, why shouldn't I get a reduction in my mortgage payments?

    BAIR: I think is a program that is going to help everybody in the sense that it is going to reduce the number of unnecessary foreclosures, putting downward pressure on home prices, which is hurting us all, contributing to the recession we are in. So there's an indirect benefit for everyone.