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Banking lobbyists argue that uncertainty over which category their claims would end up in will spook creditors and make them less likely to lend on affordable terms.
In the wake of the downgrade by Moody's, Catalonia's most immediate concern is how to secure additional financing on affordable terms.
On other fronts, Gov. Eliot Spitzer recently announced a state-sponsored refinancing option, with affordable terms, to help borrowers no more than 60 days delinquent on mortgages avoid foreclosure.
The mission of the F.H.A., created in 1934, is to provide "homeownership opportunities for first-time homebuyers and other borrowers who would not otherwise qualify for conventional mortgages on affordable terms, as well as for those who live in underserved areas where mortgages may be harder to get".
Equally important, Mr. Obama is coupling the incentives to bankers with a big stick — support for a change in the law that would allow bankrupt homeowners who cannot come to new affordable terms with a lender to have their mortgages modified under court protection.
2. If loan holders are unwilling or unable to reduce the principal on underwater mortgages to current market values, they should allow these loans to be purchased by publicly-owned or nonprofit entities that are willing to restructure them with fair and affordable terms.
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