Loan Modification Anyone?

It seems like suddenly everyone is jumping on the bandwagon. First Countrywide announced a deal with Neighborhood Assistance Corp. of America (NACA) to modify loans on a case-by-case basis. Then California Gov. Arnold Schwarzenegger announced a plan with Countrywide, GMAC and others to freeze ARM interest rates on certain loans temporarily, as long as the borrower is living in the home and up-to-date on current payments.

And then Treasury Secretary Hank Paulson, who previously talked about more "communication" between troubled borrowers and lenders with his "Hope Now" initiative, is stepping up the rhetoric, telling the Wall Street Journal that he's "aggressively encouraging" the mortgage-service industry to come up with a plan to help large groups of borrowers in distress.

All this after FDIC Chair Sheila Bair proposed that interest rates on more than two million loans be frozen at the initial rates and turned, voila, into fixed-rate, long-term loans.

Everyone is asking: is it too little too late? But I'm asking: is it fair? I'm not advocating that we all sit around and watch thousands of people lose their homes and take the whole housing industry and the greater economy down in the process. But is it fair to come up with blanket plans, which essentially allow some borrowers to get away with, well, dare I say it, thievery?

Let's face it, the shoddy mortgage products introduced in this latest housing boom were faulty, nay defective, but borrowers ate them up, and not just borrowers who were duped. Many of the borrowers were gambling on the market, hoping that home prices would appreciate fast enough for them to refinance out of the dicey products quickly and thereby live in homes beyond their means.

Some hoped to flip their houses for a profit. Most just saw a whole lot of free money, and instead of asking questions they jumped in without looking back.

And what about the potential for fraud? It goes both ways you know. I'm sure there are plenty of homeowners out there now who would be happy to connive their way into a lower interest payment, even if they can afford the higher reset. And what about those who stuck to more conservative products? Should they (including me) be penalized -- that is, have to pay higher interest rates than many others simply because we took out long-term ARMs or fixed rate loans that we knew we could afford in the long run?

I know something has to be done. I don't want to see the housing and credit markets crash and burn any more than the rest of you, but I do think blanket solutions will leave many hard-working, bill-paying Americans out in the cold.

Questions? Comments?