Details of streamlined mortgage modification plan announced

CLARKONOMICS: FDIC Chairwoman Sheila Bair and the HOPE NOW initiative have come up with a way to help struggling homeowners facing foreclosure.

Bair has made no bones about her belief that the federal government should play a strong role here. After the FDIC took over IndyMac, Bair put a moratorium on foreclosures for the failed bank's customers. Then she implemented a system to determine if a workout should be done. The jury is still out about the FDIC's re-dos of mortgages.

Meanwhile, there's been a big tug of war between the FDIC and members of Bush's team who resisted the initial mortgage modification plan. So a compromise has been announced, effective Dec. 15.

If you are delinquent, there is a new formula to determine whether or not you can refinance into a more affordable loan. Under the compromise, your payment will be reduced to 38% of pre-tax income. That includes taxes, insurance, HOA/condo fees, etc. All outstanding late fees will be waived.

In order to be eligible, you have to be at least 3 months past due; must be an owner-occupant; and can't have more than 10% equity in the home. There's even a flow chart detailing every step of this streamlined modification program. (Editor's note: This is a pdf file.)

All of what Clark is saying here leaves out the question of moral hazard. He's purely talking about the practical nuts-and-bolts of what's going on -- this is not intended as a discussion of the inherent fairness issue.