The HAMP program is a dismal failure. 116,000 loans have been modified out of the millions of applicants who asked for help. I read an article from NPR that recalled the great depression era solution. President Roosevelt created a program called HOLC or Home Owners Loan Corporation. In essence they purchased loans in distress from banks and negotiated new affordable mortgages with homeowners. President Obama has misunderstood the calculus faced by homeowners facing foreclosure, homeowners upside down in their homes have little incentive to save it even with a lower payment. modifications that reduce principal are far more successful than those that just lower the interest rate, the extend and pretend mantra that lenders use in today's mod's often include missed payments, late fees, service charges racking up an even higher principal balance.

In contrast a homeowner with equity to protect will find a way to make those monthly payments. The time for the government to step in is now. The servicers fear that if they lower peoples principal balance, more and more people will stop paying and wait for an offer to be given to them. Many servicers also will not sell those notes at least not at a realistic price so how is the HOLC program going to work? Eminent domain, existing laws allow the purchase of property interests other than the outright ownership of land. If the government could buy these assets either by voluntary sale or by eminent domain for 30 to 50 cents on the dollar there would be ample room to reduce principal balance to make the mortgages more affordable. The new HOLC program like the original could pick and choose the mortgages it buys, it should only be used for primary residences and it should refuse mortgages that homeowners can afford but choose not to pay.

The best part is President Obama could enact this with out any further input from Congress and a portion of the TARP funds (75 Billion) could easily finance such an operation. It should stem off the foreclosure crisis and more importantly, it will cause lenders fearing Eminent domain and losing assets at a deep discount to voluntarily reduce principal balances.