So I’m still grappling with Countrywide’s

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[CFC  Loading...      ()   ] announcement that it’s going to refi or modify $16 billion worth of loans, and especially its agreement with NACA (Neighborhood Assistance Corporation of America), the biggest homeowner community activist around. I’m skeptical to say the least. But then I had a conversation with NACA’s CEO Bruce Marks this morning, and I have to say, you can’t change my mind easily, but I’m not quite so skeptical anymore.

According to the agreement with NACA, Countrywide has to take the most favorable (to the borrower) interpretation of the servicing agreement, and modify the loan to suit a certain affordability formula, designed by NACA. This modification includes lowering the interest rate to around a 5-6% fixed rate, and if this is still too much, lowering the actual principal of the loan.

How can that be when Countrywide is the servicer, not the investor in the loan??? Well, says Marks, according to the agreement, “if a NACA “Home Save” solution is denied by Countrywide or an investor, Countrywide shall provide the following in writing: the specific investor agreement reference identification, the investor trustee contact information, the investor’s reason for denial, relevant sections of the investor pooling and servicing agreement and the opportunity to appeal the investor’s decision based on the borrower’s risk of default, without adhering to a NACA “Home Save” solution.”

“The transparency is having a huge impact,” says Marks. They did 25 modifications on the first day. How can the investors afford it? Well, it’s still cheaper than foreclosing on the home, apparently, and the investors don’t want to have to tell NACA, and its strong political backers, that they’re denying a borrower a way out of foreclosure.

Marks says it was the servicers, like Countrywide, that were the real barrier, because the costs to do these modifications are not reimbursed by the investors; in other words, Countrywide has to eat the costs, which we have already seen in the most recent earnings report (Countrywide’s loss of $1.2 billion, thank you very much).

Oh, and as for the prepayment penalty issue: there isn’t one, because the bulk of the loans are being modified, not refinanced to a new loan. Sounds pretty good I guess, for the homeowner at least, aka the borrower, but the pain to the servicers and the investors in these pooled securities is only going to get worse, and it makes me wonder: Where’s the lesson in all of this?

Sure, the lending industry got totally out of hand, giving its own soldiers massive incentives to put people in loans they couldn’t afford, the bigger the better. And they should have known that gravy train would speed off a high bridge at some point, but they just kept chugging.

And now CEO’s are losing their jobs and companies are going out of business, sending hard-working people, not just the loan officers, out into the streets with their boxes of plants and pictures of kids. And this will continue as the lenders and investors “correct” all these loans and keep all the borrowers in their homes.

And the borrowers, who saw all this free money and couldn’t help but jump into all these great products from “reputable” lenders, claiming that none of this could ever go bad, are now staying in their oversized, overpriced, over-amenitized (I made that word up) homes, with their “modified” affordable loans, while those who saw through the too-good-to-be-true offers are sitting in smaller homes with fewer bathrooms.

I know that plenty of folks are out on the street, their homes foreclosed: their lessons learned. I’m just caught here. I know we have to help those in danger of default, we have to right the lending market, we have to change the business, protect the consumers, save the system and get the housing market back on its feet.

But where’s the lesson?

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