Sheila C. Bair, the chair of the FDIC, suggests that lenders "restructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but can't afford the reset payments. Convert these to fixed-rate loans at the starter rate."

According to Bair, there are still $300 billion in ARMs set to reset before the end of 2008, so the problem can't be ignored.

Merrill Lynch estimates that if home prices decline by just 5 percent, a quarter of subprime loans may enter default, resulting in losses of almost $150 billion.

Fix Rates To Save Loans [NYT]
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