[quote=temeculaguy]It makes some sense to go after that component or that particular breakdown in the system but you can’t interfere with an existing legal contract between two parties. [/quote]

Courts can re-write contracts but only under very limited circumstances. More likely in this context, judiciaries enact laws that nullify the terms or prohibit performance of certain types of contracts. Also possible is the voluntary amendment of existing contracts. Mortgages are contracts–bank gives X money, X promises to pay. I know there would be huge ramifications but it seems to me that maybe a simple–tho perhaps not economically educated solution–is to have the banks and the buyers rework the terms of the loans? Foreclosure will not compensate the banks in a down market. Why not allow the buyers to renegotiate loans for something they can actually afford plus a little extra (10-20%) to keep the banks from folding and create a little necessary tension for the buyers (who should have known better to begin with). The banks get at least a portion of the loan back and the buyers don’t walk en masse.

The banks will have to declare losses, but soon I think they won’t be able to help it either way (assuming they DO report them).

I am sure there are holes in this approach–an economic ripple effect that I am not seeing. Thoughts?