Will economy get on track?

If the Wall Street executives who ignored ethical lending standards had a theme song, I imagine it would be "For the Love of Money" by The O'Jays: "For the love of money, people will lie, Lord, they will cheat. For the love of money, people don't care who they hurt or beat."

Unlike the fate of the people in the O'Jay's anti-greed ballad, Treasury Secretary Henry "Hank" Paulson rewarded the Wall Street executives who wrecked our economy with a $700 billion handout -- while millions of regular folks are losing their homes, jobs, nest eggs, retirement accounts and college funds. Families lucky enough to still have the money to pay their mortgage are watching their equity implode as housing prices plummet.

Nevertheless, addressing the immediate and crushing problems of the average American family paying for the $700 billion bailout, says Paulson, a Wall Street multimillionaire, wouldn't be a good investment. Paulson will be removed from the Treasury Department come Jan. 20, 2009.

Unless we address the tsunami of foreclosures still sweeping through every town and city in America, the forecast for the financial health of the average American family will be even bleaker.  According to Credit Suisse, a minimum of 2 million family homes will be lost to foreclosure in 2009. That's on top of the 700,000 homes already lost to foreclosure. Almost 3 million families -- that's approximately 12 million men, women and children in America kicked out of their homes.

If that weren't bad enough, other sources estimate that foreclosures are already occurring at a rate of 2.3 million per year. Meanwhile, Credit Suisse found that as of this past August, only 3.5 percent of delinquent subprime loans had received modifications that would save a family from eviction.

Paulson and the financial industry claim this pincer squeeze on the average family is being addressed. They explain breezily that homeowners are getting their loans repaired through the Federal Homes Administration's Hope for Homeowners Program or the industry's HOPE NOW alliance. The facts, however, don't support their claims.

These voluntary loan modifications are not happening at the rate needed to keep struggling families in their homes. During its first month, the FHA program received only 100 applications from lenders. The FHA eventually reduced to 13,000 the projected number of families it expects to help. Millions of family homes in foreclosure; 13,300 will receive government aid. Something's not working.

Voluntary loan modifications through HOPE NOW haven't fared much better. Rather than changing the risky and unsustainable elements of mortgages to make them affordable to borrowers long-term, HOPE NOW has focused solely on repayment plans. This means that the plans HOPE NOW offers requires these financially burdened families to add unpaid debt to their current mortgage payments. Naturally, this results in high default rates.

Even as I write this, some in Washington are already sounding the call.

Senator. Dick Durbin, D-Ill., Chairman of the Financial Services and General Government Appropriations Subcommittee, brought the Senate Appropriations Committee to his home state to spotlight this foreclosure crisis. (In Chicago alone, the rate of foreclosure jumped by 50 percent in the past year.).

And Federal Reserve Chairman Ben Bernanke said, "Housing market remains central to the economic and financial challenges that we face," emphasizing the government must do more to stem this dark tide.

So what can be done to get us moving in the right direction?

Congress should urge the Treasury department to follow the plan proposed by FDIC chief Sheila Bair. In a nutshell, her plan encourages investors to voluntarily modify loans. This simple idea avoids the main flaws inherent in the FHA's Hope for Homeowners Program and the mortgage industry's HOPE NOW alliance. Leave it to a woman to figure out how to most efficiently stretch a dollar.

Using up to $50 billion of the $700 billion bailout funds, FDIC would guarantee loans and share any losses with investors for up to eight years. To safeguard the public's investment in their neighbor, the loans would need to perform well for six months before the FDIC guarantees kicks in. This also addresses servicers' concerns that many loans would re-default and lead to more losses in a declining market.

In addition, FDIC would pay servicers $1,000 for each completed modification. The plan is not perfect; then again, no plan ever is. But the FDIC proposal is a step in the right direction.

Second, to encourage servicers to pick up the pace on loan modifications and to create an end run around servicers who refuse to modify loans, Congress should allow homeowners to have their loans modified to the market rate through the court system. The current trickle of loan modifications is killing the millions of families now drowning in a sea of foreclosures.

Bankruptcy courts already modify loans for other debts, including mortgages on vacation homes and investment properties. Investment banks like Lehman Bros. can have their loans modified under Chapter 11. Yet a loan on a family's primary residence is the only secured debt that cannot be restructured in a Chapter 13 payment plan -- even when the family could afford a market rate. That's wrong.

This option should also be available to homeowners for their primary residence. The home is typically the asset most critical to a family's financial security and its main vehicle for building wealth. Predatory lenders destroyed that path to financial security by pushing loans they knew would eventually blow up and cripple the homeowner.

Trillions of tax dollars have been spent to bail out the financial industry with no real benefit to homeowners who want to stay in their homes. Allowing the courts to supervise loan modifications would not cost the taxpayer a dime, and it would allow hundreds of thousands of families to keep their homes.

President Bush has opposed court-supervised relief for homeowners. He continues to persist in his belief in a trickle-down theory that helping the industry helps the economy and thereby helps the homeowner. With all due respect to the president, this is hogwash. Of course, this is the same president who insisted we were not in a recession when everyone else in the country knew darn well we had been in the throes of one for almost a year.

Fortunately for homeowners, President-elect Barack Obama supports judicial modification for homeowners. Next year, the new administration and the Democratic Congress will move quickly to stem the tide of foreclosures as they work together to get the economy on the right track.

In the words of the immortal Sam Cooke, "A change is gonna come." My prayer is that change doesn't come too late for the millions of families in desperate need of it now.

Donna Brazile is a political commentator on CNN, ABC and NPR; contributing columnist to Roll Call, the newspaper of Capitol Hill; and former campaign manager for Al Gore.