There’s no easy solution but McCain’s proposal is garbage. All it does is bail out the lenders. Let/encourage the upside-down homeowners to walk. In this economic environment it’s (in my opinion) quite likely that housing prices are going to fall until they reach their intrinsic value, i.e., where they “pencil out” as rental properties. Although the prices may “overshoot” there are still lots of people with money that will, in one way or another, buy these houses and turn them into rentals. This will form the new bottom for houses and where they go from there depends on how incomes increase over time.
A better solution would be to sponsor/underwrite lower interest rate loans for qualified buyers, or for refinance, or for investors. One effect of this is that it would increase the price at which the properties “pencil out” and arrest the price fall sooner and at a higher price level. It’s also inherently fairer in that it would also reward responsible homewoners that are fiscally responsible (e.g., those with high down payments, that did not cash out refi, pursued 15 year loans, improved the property).
