The settlement struck to end 11 states’ lawsuits against Countrywide Financial Corp. adds another model for lenders to look at when trying to deal with their portfolios of troubled mortgage debts. That was what Paul Leonard, director of the Center for Responsible Lending, argued in the conversation I had with him yesterday.

But it’s not just a matter of a lender getting a loan modification program going because it doesn’t want to stare down Jerry Brown, or Mike Aguirre for that matter, Leonard said.

Nor is it purely benevolent, the banks deciding to help Suzie Homeowner stay in her home. It’s a way for the banks to take an asset that is non-performing — a mortgage with skyrocketing payments headed for foreclosure — and make it function again as a loan where borrowers are still making payments, albeit at a loss.

When IndyMac Bank failed earlier this summer, the Federal Deposit Insurance Corp. seized it and nearly immediately instituted a program to modify thousands of loans and help homeowners avoid foreclosure. The regulator stopped foreclosures on IndyMac loans and ordered the bank to offer refinance packages for borrowers who’d fallen behind on their mortgage payment.

That’s a model not forced by litigation but instituted because of the FDIC’s desire to try to stop the bleeding from the failed bank’s subprime loans.

“FDIC is doing this to try to maximize the value of the assets that they’re managing at this point, because of the cold hard economic calculation,” Leonard said. “Because a modified, performing loan is going to be worth more than a deeply discounted foreclosure sale.”


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