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In contrast, the FDIC program starts by taking a hard look at what homeowners can actually pay. Once it calculates an affordable payment, pros start playing with the mortgage numbers to see what they can adjust to hit that magic number. They start by reducing the interest rate. If that doesn't push the payment low enough, they'll extend the term of the loan. As a last resort, they'll consider lowering the principal amount of the mortgage. The mortgage holder loses money in any of these scenarios, but the appeal of these deals is that they usually lose less than if they foreclose on the house. Marks says these deals are also better in the long run than modifying a mortgage that winds up in default a few months later.

"If you provide a homeowner with an affordable mortgage payment that you lock-in forever, there's a fully amortizing loan," he says, meaning the homeowner will be gaining equity with each payment and will eventually pay the loan down to zero. Even if the homeowner is currently "underwater" (meaning the loan exceeds the value of the home), if they can afford the payment and are building equity, they have every reason to stay in the house.

Marks' views make sense to me. At root, the mortgage crisis was sparked when the industry's underwriting process lost its focus on the question that should be its primary interest: Can this person pay back this money? Now, as the government seeks to help thousands of homeowners out of this crisis, creating a streamlined program that's focused on that question sounds like a smart move.

—Daniel Mcginn Is a National Correspondent at Newsweek and the Author of"House Lust: Americas Obsession With OurHomes."

© 2008

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  • Posted By: secondarytradedesk @ 02/25/2009 10:45:58 AM

    A year or more ago I try to get this fool to listen to me and write a simialr article. No mention needed for the source of information. Just wanted Mr Dan to report the facts that back then noone could ever beleive. Now he thinks hes telling us somthing newsworthy.

  • Posted By: MichelleBaily @ 11/25/2008 1:54:21 PM

    My biggest savings was my mortgage. My loan with Countrywide was in an adjustable rate and interest only loan. My payment was 3800. I'm now paying 2200 and that rate is fixed for all 30 years. I used a web site called www.LoanModAssistant.com. It was only $199 and worked like a charm. It took me 6 weeks to finish this. That was like getting a 1600 per month raise. Anyone that needs help with this should check it out.

    It's hard to know who to trust these days. This site says is an American company and does have a guarantee. That was important to me. Most "mod" companies dont even work on your mod let alone have a guarantee. This one does.

  • Posted By: Californio 1 @ 11/25/2008 1:37:56 AM

    The Democrats do bear a disproportionate share of blame however the biggest share lays with the people who perjured themselvs lying about their assets and income, the bankers and morgage lenders who perjured themselves when falsifying their credit checks and due dillegence, and the Wall street brokerages for perjuring themselves by lying about the actual assets they were selling to insurers and buyers alike. Quite frankly they are the ones who need to have their assets taken and spend a long time in prison or working for the common good in whatever nasty jobs we can find for them. They haven't just lied they have screwed all of us, the economy of the entire world and the US treasury and thereby all taxpayers.

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