Indymac and FDIC Working to Adjust Delinquent Mortgages

The WSJ had an interesting article today on how the the FDIC, through Indymac Federal Bank is testing a program to adjust mortgages to help people stay in their homes. The idea is to prevent foreclosures, which are expensive to banks, as well as keep people in their homes. Not everyone qualifies to have their mortgage adjusted. You must not be able to afford your home, must be delinquent, and the bank must not be able to sell the house at a profit in foreclosure. In other words, the property and owner must be in terrible shape.

Here's one sad example from the article:

"Nanci Puerto, a 40-year-old house cleaner in Antioch, ran into such a problem. She refinanced her house for $637,288 from IndyMac in 2006, taking out cash for a down payment on another property. She and her husband, who works in a machine shop, take home a combined $70,000 a year."

How can someone with a combined salary of $70,000 expect to afford a mortgage of $637,288? The general rule of thumb is to buy a house that is between 2-3X your annual salary.

It doesn't seem that anything the FDIC does would keep someone with these stats in their home. While I emphathize with people losing their homes, I wonder if we all wouldn't be better off simply taking our medicine and letting the market adjust quickly, rather than trying to subsidize everyone and artificially propping up unsustainable situations.