A simple solution would have just been to use the HOLC recommended by Blinder. Schiller has come up with ideas as well. Being able to suspend payments, reduce payments, increase payments according to ability to pay. Another solution would be to nationalize the mortgage business (the vast majority is anyway) and do a one time price adjustment and simply write it off of the government books. ie, Monetize it. It won’t cause inflation but the government would be forced to re-institute fiscal discipline because the market would demand higher rates.

There are hundreds of solutions. That isn’t the problem. The problem is that there is no political leadership beholden to the American people. Only to the crooks.

No one suggests the banks be “blown up.” The fact is the recovery on foreclosure is lower than preserving the revenue stream by making the terms affordable. But uno accurately points out that the banks are clinging to relaxed accounting rules and mark to model to boost balance sheets. Thus their accounting fiction fig leaf is threatened. That can be addressed in0 various ways, federal guarantees being just one.

IMO all of this that I’m proposing is academic if you rate the risk of further systemic collapse due to foreclosures as very low.

Thanks, I’ll check that out. Though, last time I read a worst case scenario, which was in the Stress Test report, it wasn’t exactly reality based.

I’m with uno on the bank comments towards her as well. As much as we’d all love to see the banks eat it on these, does anyone really believe that

a. that is going to actually happen and
2. that if it did happen it wouldn’t do anything but lead to more pain for the average Joe

the size of our debtload should help people understand and grasp how desperate many households are to access credit on a regular basis.

We’ve already seen 57+ bank failures this year. Write homes down to ‘market’ (whatever that is, and wherever that stops) and you’ll see GreatER Depression fairly quickly. You can’t hammer the banks, much as they are culpable in this matter, and not see credit completely dry up and blow away.

Banks are in reality a quasi-governmental thing, m’lady. Witness the various bailouts, including Citi. And when/if the internally-funded FDIC becomes the taxpayer-funded FDIC, taxpayers will pay in spades for domino-falling bank failures.

At the end of the day we’re dealing with a cash crunch during a monumental de-leveraging (de-loaning) period of time. Short of a revolution (likely inadvisable), you can’t fix that by blowing up the banks (likely enjoyable).

Home ownership after all is about much more than the taxes, or lack thereof. I might prefer to pay a few thousand a year in property tax for example to live somewhere where it isn’t so hot in the summer. Seems simple but stuff like that is a main consideration for a home purchase, the property taxes, unless extremely high, are typically not the main reason people buy a certain home.

I’m not sure it’s this simple:

Reduce principle to market value, reduce interest rate, if the homeowner still has a job, this should be enough to keep them in their home.

I saw a chart not long ago that showed that many of these homeowners that are still in a major pinch have excess of 30% of gross income going towards the mortgage payment in many cases, and that doesn’t factor in the debt payment as a % of gross income on other debts such as auto and student loans or credit cards. You couple that with the fact that many households have to spend a very high portion of their income on needs items such as food and energy and I’m not sure it’s so simple to just reduce principle to market, even doing that reveals many of these homeowners still can’t afford at the current price.

How low can you lower the rates anwyay? Weren’t a lot of the borrowers that ended up in foreclosure already paying extremely low rates on some sort of ARM?

Sadly if banks take the loss as you state above, I don’t know why you’d believe there would then be no cost to the taxpayer, we already are paying for the subprime mess the banks helped create.

Maybe you have some data that would show your solution would actually work?