Four Steps to Ending the Foreclosure Crisis

Introduction

You'd be hard-pressed to find a person who doesn't think it's a good idea to stem the foreclosure crisis that helped kick off the broader financial meltdown and continues to exacerbate weakness in the economy. You'd also have a tough time getting any two groups with skin in the game to agree to the best way to do that. As the Bush Administration considers proposals for restructuring mortgages borrowers can no longer afford, the debate about what would help the most extends into the highest levels of government.

One early suggestion, floated by the FDIC, is to tap the Treasury's $700 billion bailout fund to share in lenders' losses, hopefully sparking them to do more deals. But Treasury and the White House haven't immediately hopped onboard. One concern: guarantees would incentivize lenders to let more houses slip into foreclosure. The track record of programs so far illustrates how difficult it can be to get things right. What would have to happen to make one work? Four main things: