"basically breaking with the rest of the administration and hoping the Congressional Democrats can make it happen."

Baseline Scenario on the FDIC proposal for mortgage relief:

"This plan (which we’ve heard about in some form or another for weeks) would apply to all owner-occupied homes that are at least 60 days past due; mortgages would be reduced so monthly payments are no more than 31% of the borrower’s income. Based on FDIC experience at IndyMac, most of those reductions would be made by reducing the interest rate as low as 3% and extending the term; principal would only be reduced in a small number of cases. (From a net present value perspective, of course, lowering the interest rate and lowering the principal are two ways to get at the same thing.)

Because the government does not have the power to force loan servicers to modify loans, the incentives would be a $1,000 fee per restructured mortgage and, more importantly, a government guarantee for up to 50% of the loan value in the case of a re-default. Participating servicers would also have to systematically review their entire portfolios for loans eligible for modifications, to prevent them from picking and choosing. The FDIC’s high-level estimates are that 4.4 million loans will become sufficiently past due by the end of 2009, 2.2 million could be modified, and 1/3 of those will re-default; the total cost to the taxpayer would be $24 billion, mainly for paying off the guarantee on defaults.

The basic principle of the plan is sound: providing a government incentive to get servicers to do something that will help borrowers and the communities they live in. However, I don’t see anything in it that will get around the securitization problem - servicers are legally bound only to act in the interests of the investors who own the bits and pieces of the loan, and some of them may sue if loans are modified in ways they don’t like. Solving that problem will almost certainly take new legislation."

So:

1) 60 days since payment

2) Payment reduced to 31% of income

3) Reduce interest rate on loan

4) Extend term of loan

5) Lower amount of loan ( Rare )

6) $1000 per mortgage to loan servicers

7) FDIC guarantee of loan value if borrower defaults again

8) Servicers must disclose who's eligible

Problem:

1) Servicers can still be sued by the lenders

Okay. This plan gives an incentive to the servicer by paying them a fee. However, the lender can object if they don't like the terms.

Since the government can't force anyone into this plan, it will be up to the servicers and lenders to accept these terms or not.

The FDIC is linked by me in the other sites area.

But get this, as reported by Baseline Scenario whose analysis I liked:

"By the way, this is Treasury’s response, according to the AP:

[FDIC] officials want to use part of the $700 billion bailout of the financial industry to pay for it. But the Treasury Department is opposed to that idea.

Testifying on Capitol Hill Friday, Neel Kashkari, the Treasury Department’s assistant secretary for financial stability, said the intent of the $700 billion plan was to make investments with the hope of getting the money back. That, he said, was “fundamentally different from just having a government spending program” that would disburse money with no chance of ever seeing any returns.

Is there really a fundamental difference between (a) making investments that theoretically could get a positive return but are really bad investments you are consciously making to shore up the financial system and (b) extending loan guarantees that you know will cost you some money, but will help stabilize the housing market, increase state and local tax revenues, and keep people in their homes?"

There is a difference. The question is whether either is a wise use of taxpayer's money. I'll be honest. I don't like either plan, because there are too many variables that can add cost and lessen effectiveness. However, if they do this, I hope that it works.