CNN offers this look at mortgage modification efforts in the private sector, and then misses the entire point by insisting that Washington needs to do more to help. Sandra Endo reports from the floor of a massive convention that brings borrowers, lenders, and counselors together to attempt to salvage mortgages and keep people making payments on their homes. Endo rightly notes that the Obama administration’s efforts on this score have hardly made an impact, but fails to understand why:

The answer to this is simple, and it’s even explained by the BofA representative interviewed in the clip. Banks and investors lose when homes go into foreclosure. It’s better for everyone to readjust term, if the borrower can meet any kind of rational terms for the mortgage.  Otherwise, the home will lose a large percentage of its value, and investors will take a large loss on the property rather than just make smaller gains over the long term.

The main problem has been unwinding the mortgage-based securities issued through Fannie and Freddie to get clarity on investment ownership.  Each mortgage had literally hundreds or thousands of investors, who previously would all have to agree on modification terms.  The administration needed to change those terms to give banks more leeway in negotiations.  Otherwise, the only benefit they could provide would be to remind people to talk to their lenders if they get in trouble.  Those whose mortgages can be rescued will be rescued, whether in forums seen here or in one-on-one negotiations, because it serves everyone’s interests to keep the homeowner making payments.

So who would get served by a government bailout?  Mainly people who can’t live with reasonable terms.  Taxpayer money will go into extending these loans in the hope that the homeowners can somehow figure out where to get more money, but in the end most will fail.  Instead of letting the market make that determination up front, the Obama administration is playing kick the can with taxpayer money, and in the end the market makes the determination anyway.

Update: Ah, the pitfalls of relying on spell check.  Of course, the headline should have been loan modification, not load.  Sorry about that.