When the housing crisis first hit, there was a chain reaction not unlike an actual train wreck. As foreclosures mounted, clogging up the tracks of lenders, homeowners in search of loan modifications started rolling in, hoping to avoid the debris up ahead but still piling up behind it. The homeowners’ requests were in many ways legitimate — they wanted to reduce the terms of their mortgage so that they would be less likely to become part of the overall wreckage.

I don’t want to express too much sympathy for banks, but they were completely unprepared for this. The same departments that traditionally handled foreclosures also handled loan mitigation, as loan modification is called in the industry. Load modification requires similar documents that an original loan does, such as income statements and credit statements, but also hardship letters. Homeowners would send these documents in, and they would disappear into a black hole. Three months later, they’d get a request that all the documents be resubmitted.

A catch-22 popped up in that, if homeowners lost their jobs in the meantime, they were no longer eligible for modification. Think about it — the people who needed it most were disqualified.

The situation got worse. As usually happens in such a crisis, third-party intermediaries step in and offer to guide dazed and confused homeowners through the process — for a fee. Now, some of these companies were legitimate. But as it happened, they were no more successful at navigating the rubble of the lenders’ loss mitigation departments than the homeowners were. Frequently, they just gave up — after they collected their fees, of course.

The situation has improved somewhat now, I’m happy to note. California has instituted some rather stringent guidelines regarding these loan modification agencies. The agency must be licensed by the California Department of Real Estate. It must comply with an 11-point checklist of items that must be taken care of before the agency is paid. Even better, the federal government is beginning to exert pressure on mortgage lenders regarding modification under the guise of consumer protection issues. To motivate the lenders, the federal government may allow the lenders to recover some of any losses attributable to the load modification. The government is also postponing for a year or two taxes that homeowners may owe as a result of obtaining debt relief.

We’ve recently come across a company called I’m Not Leaving, which has developed software that calculates figures showing bank officers how much they will benefit from load modification based on the Obama administrations’ tax credits. By doing a lot of the lenders’ own homework, it gets the process moving more quickly. According to I’m Not Leaving, it can generate a 97% approvable situation inside of 48 hours. You know what your costs are going to be before you sign a contract, and you don’t pay until the load modification goes through.

That’s what I call light at the end of the tunnel.