One failed bank gets the housing fix right

Last Updated: October 24, 2008

NEW YORK (Money) — The battered economy is in desperate need of a housing fix, and one failed bank just may have the answer.

Yesterday FDIC Chairwoman Sheila Bair told the Senate Banking Committee about the success her agency has had in helping struggling borrowers at IndyMac, which the FDIC took over this summer.

Bair, the nation’s leading bank regulator, thinks this foreclosure prevention program can work for other banks.

“Our hope is that the program we announced at IndyMac Federal will serve as a catalyst to promote more loan modifications for troubled borrowers across the country,” she told the committee.

She’s not alone. While individual lenders, loan servicers and non-profit foreclosure prevention outfits have been chipping away at the staggering housing crisis on a case by case basis, IndyMac, under the FDIC’s leadership, became the first bank to establish a set protocol to modify home loans.

“I think this is an appropriate way to go, and I would hope that more institutions would take it up,” said Michael Barr, professor of law at University of Michigan and a senior fellow at the Center for American Progress. “We need a systematic way to do this, we can’t continue to do this on a one-by-one basis.”

Chris Kukla, senior council for government affairs at the Center for Responsible Lending, points out that this is precisely…