The bailout bill already covers this, bank agrees to take 90% of appraised value and borrower refi’s with fha. It’s voluntary and has a few catches. Catch one is any profit when it is sold is split with FHA, they saved you, they want half. The other catch is you pay 1.5% per year in pmi. Third catch is it is voluntary. Bank can look at it as they will lose 10% in the repo process and the escrow/realtor fees. People get to basicly walk away and walk back in without ever moving, resetting to today’s value.
The downside is it is too late for most and the income requirements, documentation and no missed payments will kill anyone in the pipeline already. It may save 10% but that is moving forward, we have a year of repos to chew through. At best it shortens the downturn, bringing to an end in 12 months. Softening the landing will inhibit the next rise, my guess, things will be flat from 2010 on, for a few years.
