Securitization Mortgages. No Problem.

Contrary to the "hard" problem Paulson complains about and what all the talking heads on CNBC claim, according to Sheila Bair, the so called toxic mortgage debt that lives inside of securitized loans can be identified and modified. Read Sheila Bair's position in Joe Nocera's column.

Here's part of the response from the FDIC:

The F.D.I.C., however, begs to differ. As you’ll recall, the agency took over the California bank, IndyMac, which had, as Ms. Bair put it, “a pretty impaired portfolio.” It has since instituted a broad mortgage modification effort that also serves as a laboratory for what can and cannot be done. What the agency has discovered, said Mr. Krimminger, is that the contracts are rarely as constricting as investors and servicers have been portraying them. They do not allow principal reduction, for sure, but they almost never disallow interest rate reduction — or delaying principal payments for a short time. What’s more, Mr. Krimminger said, the servicer agreement simply says that the servicer’s job is to maximize the investment — which often means avoiding foreclosure.