The Senate Committee on Banking, Housing, and Urban Affairs reported the principles of the Homeownership Preservation Summit last week. The goal is to get investors, loan servicers, and lenders to work with borrowers and community groups so as to minimize the number of foreclosures that might result from sub-prime and other borrowers who face that possibility due to their loans resetting.

One problem is that the sheer number of re-setting loans is staggering.  You can&39;t just work through these loans with standard loan service personnel. It calls for a massive intervention on a large scale.

To that end, lenders are encouraged to create special teams to work on this. One lender has a group called the Mod Squad (Modification Squad – get it?) Their first goal is that borrowers in loans that are likely to be problems be contacted early. That is important because something like 50% of borrowers who are in trouble fail to call their lender first. Lenders are urged to be more pro-active.

Where possible, the lenders and servicers should work to modify loan terms so as to find an acceptable solution that allows the borrowers to stay in the home. Options include switching to a loan with fixed payments, reducing the interest rate or extending the initial rate, re-amortizing the loan, and so forth.

FannieMae, FreddieMac, and FHA are being encouraged to modify such loans that they own and to provide low cost credit availability to deserving borrowers.  They even encourage the purchasing of pools of sub-prime loans and initiating re-writing them.  One problem that will prevent is running borrowers through the sub-prime mill again so that everyone can feast off the borrowers one more time.

There is no doubt that not every troubled loan can be saved.  Some borrowers made poor choices and are really in over their heads.  For such borrowers, foreclosure is certain, but there is no doubt in my mind that this kind of initiative will be good for everyone else.

A copy of the Statement is at http://dodd.senate.gov/multimedia/2007/050207_Principles.pdf