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Most of us are in agreement that the securitization of mortgages ( mortgage backed securities) played a large role in the recent  collapse of the housing market.  Now, some of the folks who brought us mortgage backed securities are offerring a fix.

 Dan Levy and Nadja Brandt, in a posting on Bloomberg, reference a plan by Lewis Ranieri where by banks offer assistance to homeowners, “Ranieri and Kenneth Rosen, a University of California economist and chairman of Rosen Consulting Group in Berkeley, published a five-point plan last month urging banks to reduce debt for qualified borrowers and recognize losses on second mortgages and home-equity lines of credit. They also favor having the mortgage market continue to be backed by Fannie Mae and Freddie Mac or a “successor entity.”

This plan differs from current loan modifications, which are based primarily on interest rate reduction and stabilization for homeowners who got in trouble with adjustable rate loans.  Ranieri’s  proposal, instead looks at debt reduction.  When the housing crisis hit a few years ago, a radical idea trotted out, was for banks to forgive the difference bewteen loan balances and current property values.  Presented now by “insiders”, and after a few years of foreclosures and short sales, this plan doesn’t seem “radical”at all.