Focusing On Foreclosures Now that the election's over, is relief in sight?

(Newsweek) With the election concluded, Washington can turn away from the cable pundits and turn its attention back to the financial crisis. And as they do, one task looms large: What's the best way to help struggling homeowners who are facing foreclosure?

It's an effort that began more than a year ago, when the government began offering programs like FHA Secure and the Hope Now alliance. Those programs are intended to help homeowners refinance into more affordable mortgages or work with lenders to modify their loan terms and reduce their payments. But as unemployment increases and more people face the prospect of foreclosure, critics say these initial programs aren't doing enough to help. With taxpayers putting up hundreds of billions of dollars to bail out financial institutions, it's time for the government to become more proactive about saving people's homes.

While there is no shortage of proposals for what should be done, by far the leading contender is being pushed by Sheila Bair, the chairman of the Federal Deposit Insurance Corporation (FDIC). This summer, the FDIC took over a failing bank called IndyMac and went to work swiftly modifying thousands of homeowners loans. Instead of doing a painstaking case-by-case analysis of each loan, which is what made existing modification programs move so glacially, IndyMac began applying standard formulas, based on each homeowner's income to determine whether they could reduce the interest rate or extend the term of the loan to create an affordable monthly payment.

Under the FDIC's plan, this type of program would become a nationwide standard. But for the last week the proposal has been bogged down by bureaucratic snafus. On Tuesday, The Wall Street Journal reported that officials at the Treasury Department and the White House weren't yet willing to sign-on. Some observers believe the Republican administration wanted to sit on the proposal until after the election, to avoid giving the appearance that it was totally ignoring John McCain's proposal to have the federal government buy up mortgages from troubled homeowners.

Does the FDIC plan make sense? To get an answer, I called Bruce Marks, CEO of the nonprofit Neighborhood Assistance Corporation of America. Marks, whom the Boston Globe once called "one of the most feared men in the corporate boardrooms of the nation's leading financial institutions," has spent years advocating for homeowners. In the last year, his group has helped thousands of U.S. homeowners work with banks to modify their mortgages. His take on the FDIC plan: "It's a huge step forward ... Sheila Bair gets it."

As Marks sees it, there are fatal flaws with the existing government programs to help refinance or modify loans. For many homeowners, refinancing is out of the question, since their homes are now worth less than their loan amount, and their credit scores have fallen due to missed mortgage payments. Marks says too many loan modifications don't take a realistic look at whether the homeowner will really be able to make the new payment.