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Recently overheard in a coffee shop: "Pretty soon there will be just one bank -- the United States of America." Extreme, perhaps, but an understandable exaggeration, given recent events. In 2008, more than 100 subprime mortgage lenders went entirely out of business. Shortly thereafter, even the major banks started to feel the heat of the foreclosure crisis, and consolidations commenced: Countrywide was purchased by Bank of America; World Savings was acquired by Wachovia, which was then bought out by Citigroup; and in the largest bank failure in American history, WAMU went bust and was picked up for a song by JP Morgan Chase.

Then, Uncle Sam handed out a few hundred billion bucks to give the remaining entities cash to lend, and to stay afloat.

During the election there was lots of talk about the impact of these Wall Street goings-on on John and Jane Doe on Main Street. To the naked eye, there seems to be little, if any, effect of the banks' restructuring and bailout on the average homeowner. If you were behind on your Countrywide mortgage, you simply became behind on a Countrywide mortgage now owned by B of A. What is not so obvious is that when a bank goes bust, institutional changes occur that do hold the potential to positively affect homeowners with mortgages from the now-defunct lender.

How Banking Works

To get this, we might need a quick session of Banking 101. Precisely opposite to personal finances, in the world of bank finances, mortgages are assets and deposits are liabilities. Ask WAMU; the reasons they went broke were that: (1) customers made a run on the bank to recover their cash deposits, (2) the bank just didn't have the cash on hand to cover all the deposits it had taken (which is normal), and (3) due to the credit crunch it couldn't even borrow enough cash (which isn't normal). To a bank, a mortgage is an asset that generates income on a monthly basis, and adds to the bank's financial gravitas (i.e., ability to borrow more money) when its long-term income generating potential is reflected on its balance sheet.

In the foreclosure crisis, what has happened is that a much larger than normal percentage of many banks' mortgage assets simply stopped generating income when homeowners stopped paying their mortgages. Even worse, when the properties securing the mortgage went through foreclosures, those assets turned into liabilities, when the banks had to pay property taxes, foreclosure attorneys and Realtors, and then couldn't sell the places for enough to recoup the money they had lent on it in the first place.

Generally speaking, mortgage lenders have not been very effective at helping people resolve their mortgage dilemmas; owners call repeatedly requesting permission to do a short sale, or trying to negotiate a loan modification that renders their mortgage affordable over the long term, and they get the brushoff. Many industry insiders think that lenders' nonresponsiveness is at least partially responsible for the foreclosure problem getting so bad in the first place. However, when a bankrupt bank is purchased, the acquiring bank often comes in with new and focused energy around one goal: to get the busted bank's nonperforming mortgage assets back to producing income -- immediately. The quickest way to do this is not to foreclose on delinquent mortgages but to work with struggling borrowers and get them back on track ASAP.

How Bank Buyouts Can Help Homeowners

So, say you are a homeowner with a mortgage from XYZ Bank, and you've been struggling or have even totally stopped making your payments. Maybe you called the lender and got nowhere. Then your bank is bought by another bank. Many homeowners in this situation get a phone call from the Loss Mitigation or Home Retention department of the newly acquired lender to initiate a loan modification negotiation. Sometimes they get their interest rates lowered or fixed, sometimes late fees and past due balances are excused or added to the end of the loan, other times, lenders agree to write off some part of the loan balance to allow a short sale to go through. It's not always a lark, and still takes diligence and effort on the homeowner's part, but industry insiders acknowledge that the lenders most likely to modify a mortgage are those which have been acquired through buyouts.

At this point, there are really only four major, national banks, so not too much more major buying-out is even possible, much less probable. As the dust settles on these bank buyouts, expect to see a steady increase in loan modifications and short sales. Before terribly long, this will serve its intended purpose of decreasing the number of bank-owned/foreclosure properties that make it to the market. While this sounds like it may reduce the number of bargains available to buyers, it also will reduce the bargain-basement-priced competition for sellers and start to right the supply demand imbalance. Eventually, it will slow the downhill snowball of home values, going a long way toward stabilizing the housing market.

Read the Top 10 Things to Expect in the Housing Market in 2009:

• Continued market adjustments
• Action from the Obama administration
• More assistance programs for homeowners in danger of foreclosure
• Some calm to the chaos of the banks' restructuring
• Thorough reviews of mortgage applications
• Low prices and low interest rates
• Cool tech tricks and tools for the real estate obsessed
• Wiser consumers
• Leaner, greener homebuying
• An increase in consumer confidence