The drumbeat for mortgage modification is getting louder. Proposals and plans are multiplying. Some of the most prominent so far: Congress' Hope for Homeowners Act; the proposal by Sheila Bair's Federal Deposit Insurance Corp. to share losses with mortgage lenders; the settlement of charges by Ken Lewis' Bank of America Corp. against Countrywide Financial Corp. with an $8.4 billion loan-modification program; and private programs to ease pressure on underwater homeowners from Vikram Pandit's Citigroup Inc. and Jamie Dimon's J.P. Morgan Chase & Co.

The idea behind all these is simple. By modifying mortgages to reduce foreclosure rates, regulators and lenders are hoping to attack the financial crisis at its root. Fewer foreclosures could stabilize house prices and, by extension, the economy. A steady housing market would in turn take downward pressure off mortgage-backed securities, whose plunge set off the worst financial crisis since the Great Depression. Ultimately, all this would ease the strain on the banks that hold billions worth of these deteriorating securities on their books, allowing them to lend again and unfreeze the credit markets.

Trouble is, it's not that easy.

Any plan to modify mortgages is complicated by the packaging of individual loans into residential mortgage-backed securities, many of which were then used to back collateralized debt obligations. As market participants describe it, loan-modification plans pit investors in the securities against borrowers, the government and, in many cases, the mortgage servicers. "No one wants to say this aloud, but everybody wants to push investors over the side," says one structured finance specialist.

To understand what's at stake, it may be useful to understand what happens to a mortgage once it's issued. The simplest course would be a self-contained loop. The mortgage originator funds the loan, keeps it and services it. Modifying that mortgage is easy, which is why Citi and J.P. Morgan are focusing mainly on the loans they own as part of their modification programs.

In fact, J.P. Morgan's modification plan applies to only the mortgages it owns, 22% of the $1.5 trillion pool it services, according to a bank spokesman.

In the majority of cases, mortgages were sold, pooled, sliced into levels of risk and securitized as residential mortgage-backed securities, and the loan originators no longer own the mortgages. Rather, the mortgages have been placed in a trust, which, through a mortgage servicer, ensures that payments from borrowers flow in a steady stream to the investors in the RMBS pools.

Given this dynamic, chances are that any mortgage modification scheme would get entangled in multiple thickets of competing interests.

According to one mortgage investor, mortgage securitizations and the collateralized debt obligations that use RMBS to back them create internal pressures within investor groups. The most senior-rated investors -- those with the most security -- are often the most aggressive in opposing modifications and pushing for foreclosure, because the money gained from the sale of the underlying homes would flow to them first. Lower-rated investors, on the other hand, are more open to keeping borrowers in their homes in the hopes that a rebound in housing prices could, in the best case, save their investments and, at the very least, keep some cash flowing into investment pools.

"We could see class warfare in the trusts," one investor says.

Adding to the complexity is the role of mortgage servicers, whose own ability to modify the underlying loans is constrained by the so-called pooling servicing agreements, or PSAs.

Servicers are hired by trustees of the pools to manage the mortgage agreements. It is their responsibility to ensure a constant stream of payments to investors and, when the situations warrants it, to gain as much as possible from defaulted borrowers through foreclosures and property sales. In all cases, the servicers' priority is to maximize returns for the investors.

To adhere to tax codes beneficial to investors, the pools themselves are supposed to remain static and can be tampered with only under certain conditions. According to Hays Ellisen, a New York-based partner with Katten Muchin Rosenman LLP, "All pooling agreements give servicers some latitude [to modify the mortgage], but the ability to modify is extremely limited without adverse tax consequences unless the underlying mortgage is in default or it's reasonably foreseeable default will occur."

Default usually means a mortgage hasn't been paid for at least 90 days.

The degree of modification allowed is less standard. Some PSAs may allow, say, 5% of total loans to be modified. Others give servicers more discretion. A servicer may elect not to modify, even if default occurs, by continuing to make advance payments to the pool.

Several servicers struggle today to meet their responsibilities, as pools that require more hands-on servicing put pressure on the their resources. Loan modifications are unlikely to alleviate the pressure, because under most scenarios aimed at maximizing returns, servicers would have to analyze each individual mortgage to determine whether it is even worth modifying. After all, there's no use in taking the time -- not to mention the expense -- if the borrower is only going to default again.

"A lot of these servicers thought they were doing clerical work," says one lawyer. "But modifications are very time consuming and involve a lot of work."

FDIC chairwoman Sheila Bair acknowledged as much. Her $50 billion modification plan would pay servicers $1,000 for each loan modified and would have the FDIC absorb a large part of any subsequent redefaults.

There is also the difficult question of consent. According to most PSAs, investors must agree to large-scale modifications of the mortgage pools. At what point investor consent is required varies from pool to pool. In some cases, the RMBS are insured as well through monoline insurers. They, also, may have a say in any modification, although this isn't standard, either.

One industry source says there is some feeling that large-scale modifications to the underlying pool could allow the monolines some leeway in voiding the insurance contract. That could result in downgrades to the securitized pool, hurting investors further.

Then there is the question of finding investors to get consent in the first place, given that the number of parties involved in any pool multiplied exponentially during the boom years, especially through the CDO structures that allowed investors in different types of mortgages to aggregate together. Many of the RMBS were collected in "nonconforming pools," which included a variety of mortgage tranches, such as subprime, midprime and some Alt-A.

This is where it gets really complicated. "With CDOs, it's much more complex. There may be 100 different MBSs and they're all over the place," one lawyer says. Ellisen adds, "Amending the PSA itself in situations that require investor consent is very difficult if not impossible. That would require legislative action."

What kind of legislative action is, of course, the thorny question. Although it's unclear what Congress and the administration of President-elect Obama really have in mind, public statements by incoming political leaders suggest that they will likely push for some kind of modification program after the Jan. 20 inauguration.

While this may be an improvement from the current administration's laissez-faire approach, making any large-scale modification plan work smoothly will be extremely difficult. Making it work without collateral damage to some investors in those mortgages, it seems, might be impossible.