The recently released Fed plan that addresses the mortgage market situation is a preventative pill in that it outlines specific guidelines that lenders should follow.

President Bush's plan is more "corrective" in nature and provides a way for some of those in trouble with their mortgage to avoid foreclosure by refinancing their current mortgage into an FHA loan.

But if you look closely, the Fed formula is nothing more than common sense guidelines found in everyday "conventional" loans. That means income must be verified and lenders should determine if the borrowers can afford their new monthly payment and there are no prepayment penalties, and so on.

Nothing earth shattering, mind you. Just a little prudence.

The President's plan looks to help a certain sub-set of borrowers who have both a sub prime mortgage and are about to re-set into a higher rate. There is a litmus test as to who qualifies for the program and who doesn't.

But I don't know how successful Bush's plan is. Or isn't. I haven't seen any official numbers on how many homes are being saved, but I haven't seen any front page headlines. If it were a bang-up success I would imagine I'd heard something on it somewhere by now.

Both the Fed and the President have weighed in and there are others in Congress that would like nothing more than to legislate this "problem" out of existence.

So far, those are the two plans.

But there is one more plan that isn't getting any attention: the free-market plan.

While nobody was paying attention, guess what?

All those bad, bad mortgage loans that got people into trouble don't exist anymore. You can't find them. Zero money down, "stated" interest-only loans with credit scores of 500? Gone. Out the door. Toast.

And those mean, mean lenders who invented those stupid loans to begin with? They, too, are toast. Out of business. Bankrupt. Lots of unemployed people who are drawing unemployment checks. The lucky ones are, anyway.

Investors who got hosed with bad collateralized debt obligations have neither the appetite nor the assets to purchase those types of loan packages any longer.

The loans went bad and the investors lost a lot of money. When that happens you can expect an investor to no longer make such purchases. Fool me once ... .

No buyers of those lousy mortgages mean lenders have nothing to offer to their "customers" any longer. If a lender can't make loans, then soon they're no longer lenders. Instead, they're history.

Does that help those people who are in bad loans? Unfortunately, no. But what it does do is correct a market situation without the government getting involved. Each time a mortgage "crisis" emerges the government leaps in to help.

In fact, there are already so many lending rules on the books there aren't enough people to enforce them.

Have you ever heard of someone being busted because of HOEPA? RESPA? Regulation Z of the Truth in Lending Act? I haven't.

I know, I know. Those regulations were in force and it didn't stop lenders from making bad loans. Now people are in trouble. But the fact remains that the problem loans and lousy lenders are no longer around without any new legislation whatsoever.

Let the market take care of it.

Take a look at what Countrywide is doing. They're working these things out on their own. They see that they'd rather have a paying customer than owning non-performing real estate that's likely upside-down. They don't need a new law to do what they're doing. Other lenders need to follow Countrywide's lead.

And legislators need to sit on their hands.

Published: January 4, 2008

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.