Mortgage Rescues Get It Backwards: Opinion

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit cards.

NEW YORK (TheStreet) -- The housing crisis and rising unemployment have made it difficult for many Americans to pay their mortgages on time, and the result is that many are in dire straits. The problem is bad, and banks need to change the way they modify mortgages if they hope to provide adequate assistance. The current rescue strategy at most banks is to fix disasters as they arise rather than to prevent them.

According to realtytrac.com, 300,000 homes went into foreclosure in June. Bloomberg recently reported that the U.S. delinquency rate for mortgages was 9.4% and the foreclosure rate was 1.37% -- both of which are records. According to Moody's Investors Service, 42% of outstanding 2006 subprime loans are at least 60 days delinquent, in foreclosure or held for sale.

With so many homeowners and banks in financial trouble, mortgage lenders like Bank of America(BAC Quote), Wells Fargo(WFC Quote), Wachovia, JPMorgan Chase(JPM Quote) and Citigroup(C Quote) are finding themselves understaffed to deal with the increasing number of defaults. Given that a bank has only so many resources to extend to its borrowers, the dilemma becomes who to work with first. The bank has to perform a figurative triage to determine which clients demand immediate attention and which clients can wait.

According to a survey by ProPublica, most major lenders have been focusing on borrowers who are most delinquent at the expense of those who are current but will quickly become delinquent unless they get help. In layman's terms, that means banks are giving relief to people who have been irresponsible for the longest time before they consider those who have done everything in their power to repay.