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The biggest hurdle to this new plan is that banks have no efficient way to account for a mortgage when its balance is reduced. The result would normally be a write-off, which few banks can afford even if they were inclined to. The program cannot succeed as long as the government has no way to keep banks whole on these complete mortgage modifications.
The other obstacle to the plan to actually change the principle amount of mortgages is the lethargy and bureaucracy of the banks themselves. It is the same problem that the Administration’s initial home mortgage modification plan had. Banks have little incentive to help the home owner or the government. There is no profit in it for them
The FDIC’s plan is the only plan that has any chance of working. It gives a homeowner a reason to stay in his home beyond the emotional attachment that many people have to their homes.
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