On January 10, the Federal Deposit Insurance Corporation released the latest FDIC Quarterly publication covering the third quarter 2007. Included is an article entitled The Case for Loan Modification: With a Foreword by Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation. The article summarizes the current situation in the subprime mortgage market and describes loan modifications as a “straightforward strategy the mortgage industry can undertake on its own to minimize unnecessary foreclosures and return some measure of stability to housing markets.”

According to the article, the subprime mortgage problem began after 2003 with the rapid growth of 2- and 3-year adjustable rate subprime loans. The article further states that, between the end of 2003 and mid-2007, fivemillion of these loans were originated and that approximately 2.5 million of such loans still exist, representing $526 billion of mortgage debt.

In addition to compiling data on the current status of subprime borrowers, the article also addresses “misconceptions” related to loan modifications. It states that mortgage modifications are intended to be an attempt by servicers to restructure loans on their own in the interest of their investors, thereby benefiting, in the authors’ words, all interested parties.

Notably, the U.S. Treasury proposed a plan in December aimed at averting foreclosure for certain subprime borrowers.

 http://www.fdic.gov/bank/analytical/quarterly/index.html