The Obama Administration is floating a proposal that would allow the government to directly buy more loans from servicers of mortgage-backed securities

With the financial crisis quickly becoming President Obama’s primary burden, his Administration has intensified its efforts to stem the rising tide of foreclosures in order to solve the root cause of the difficulties. On Feb. 11, Treasury Secretary Timothy Geithner and Shaun Donovan, Secretary of the Housing & Urban Development Dept., met with community groups and key stakeholders in the banking industry to gauge support for a potential program that would allow the government to directly buy whole loans from servicers of mortgage-backed securities (MBS) in order to modify them—and keep more borrowers in their homes.

This is just one of several proposals the Obama Administration is considering as it comes to terms with the dire need to prevent further waves of foreclosures amid a deepening recession. There were foreclosure filings on 274,399 U.S. properties in January, down 10% from December but 18% higher than a year ago, according to RealtyTrac, a foreclosure research firm. In December, the Mortgage Bankers Assn. said that a record 1 in 10 U.S. families with a mortgage are either in arrears or having their house repossessed.

Banks and other mortgage servicers have being doing loan modification under an Federal Deposit Insurance Corp. program since the first quarter of 2008, but many have failed to benefit from a cookie-cutter approach that’s paid insufficient attention to the financial condition of individual homeowners. And these “mods” haven’t addressed the need for a wholesale cleaning out of some of the most toxic loans, those collected in securitized pools and sold piecemeal to vast numbers of investors. The problem is that there is no flexibility to modify the terms of individual mortgages in most of the Pooling and Servicing Agreements, or PSAs, that govern these mortgage pools.