"ultimate results would be better and less risky than the losses now being incurred."

Peter Bernstein, who knows a lot more than me, on renegotiating mortgage terms in the NY Times:

"Treasury Secretary Henry M. Paulson Jr. proposed a federal government purchase of this so-called toxic paper from financial institutions, which had the attraction of setting a price on these obligations and rendering some liquidity to them. But the mortgages would still be outstanding, and the names of the homeowners who took out those mortgages would still be there. Hence, the ownership of the mortgages might change, but the debtor would still be the same family or individual owing the same amount of money. The main concern now is to help the lender and the homeowner simultaneously.

A solution to these dilemmas would greatly improve the chances of reaching the primary goal: stabilization of home prices. To achieve it, we must alter the terms of these mortgages to contain the foreclosure process and, in time, bring it to an end. Only then can we shrink the number of houses under forced sale conditions and stop the downward pressure on prices.

A compulsory change in mortgage terms would initially appear to damage the lender in order to protect the borrower. But lenders are in as much trouble as borrowers because they cannot collect the money owed them and have little chance of selling a home at a price that would enable them to come out whole. Lenders and borrowers are in this crisis together.

The best solution proposed so far has been from Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation. Under this proposal, servicers of mortgages would rewrite outstanding mortgages to a more affordable level for the homeowner by lowering the principal amount owed, by reducing the interest rate, by extending the maturity — which would reduce monthly payments — or by combining these steps. In addition, the government would share a portion of the losses in these mortgages if they went into default.

WHILE this arrangement would mean a lower return than the lender originally expected, the ultimate results would be better and less risky than the losses now being incurred.

Others will come up with improvements to this plan or offer different models, but the main point is to intervene promptly, directly and powerfully to counter the home price debacle."

I included this because it lends support to the plan I put forward earlier. Two points:

1) "In particular, many mortgages were packaged as collateral for newly created fixed-income paper now owned by investors and institutions all around the world."

2)"WHILE this arrangement would mean a lower return than the lender originally expected, the ultimate results would be better and less risky than the losses now being incurred."

My point was to have terms in place that could be used, in a ladder like approach, to renegotiate loans in the future, especially where the lender is complicated to deal with. My proposal would not rule out foreclosure, nor be mandatory, merely a set of rules that could be entered into when a borrower gets in trouble, and I was suggesting we could get government information on this process in this current solution, whatever it is.