The only thing the Gov’t could do in hopes to accomplish that is give everyone in the country a 50% raise, and then you’d be right back in the inflating price scenario DWCAP mentioned.
With the rising unemployment rate, that might not even do it.
Prices need to fall. Rates won’t get any lower, or banks will go under even faster and the dollar will weaken again. Foreclosures are part of the correction, not the problem.
Since the Gov’t already wasted money on mortage lenders, investment banks, and insurance groups why not set up a national Gov’t subsidized lending program, with a flat rate profit for banks, even lower rates, say 2%, and require a 20% down payment on a 30 year fixed, limited to owner occupied. People who are upside down can refi their current loan amount at a lower interest rate and actually afford the payment. If not, they shouldn’t be in a home anyway. Banks would get the principal back just not as much interest and you could find a way to work in some bank losses into repayment as a penalty for no down payment in the first place.
It won’t save everyone, and it shouldn’t. But it would help make housing affordable, slow foreclsoures for people who may be able to afford their home and is a better use of our children’s money than floating dead companies.