"There are answers to this problem. One we highlighted several months ago remains an attractive proposal. It would require Congress to change the rules to allow for contingent write-downs and equity sharing. Put in simple terms, someone who owes at least 20 percent more than the value of his or her home could agree to let the mortgage holder reduce the principal of that mortgage to market levels. In exchange, the homeowner would agree to share any future equity in that home (say, on a 50-50 basis) with the mortgage holder.
The beauty of this plan, touted by University of Chicago economist Luigi Zingales, Dartmouth's John Vogel and perhaps others, is that it would avoid the dreaded moral hazard of simply writing down mortgages without consequences, something that might encourage irresponsible behavior. People only slightly under water would not qualify.
There may be other viable plans out there, as well. Unfortunately, governments so far have focused on things that don't work, such as credits or other incentives for first-time buyers, or programs that help people refinance. For the most part, these have simply prolonged the slow leak of toxic assets. That leak hurts everyone with an interest in the current ownership of these homes, as well as the overall economy."
if the govt enacts this law to force banks/lenders to reduce the principal on severely underwater mortgages, it is
1. going to destroy the local banks in the NV, FL, AZ, MI markets and the like.
2. going to destroy the sellers in the NV, FL, AZ, MI markets and the like.
3. unfairly benefit those homeowners in the NV, FL, AZ, MI markets and the like.
How about these underwater homeowners get a second job, sell unnecessary junk, or rent out a room, cut cable and cellphone and vacations, and Starbucks in order to pay down their debt?