Citi to support novel attempt at mortgage relief?

Cram-downs are inevitable because we’ve got to get the leverage out of the economy. A lot of people bought houses at wildly inflated prices and now their liabilities are greater than their assets. As long as that is true, we won’t get out of the recession.

Do you think cram-downs only will apply to bankruptcies? That wouldn’t be fair to neighbords who don’t declare bankruptcy; it might even amount to a taking. The threat of big cram-downs might make investors and mortgage originators agree to sensible cram-down policy.

This is insane. Better to make it policy for the holder of a mortgage that is about to go into foreclosure to sell it at it's fair market (discounted) value to the Treasury Dept, who would then restructure the payment terms of the loan so that the principal is not compromised but the payments reduced to about 1/3 household income. The foreclosure would then not take place, the lender does not wind up with an empty house, the homeowner does not have to move into a station wagon, and the only loser is the holder of the paper who was dumb enough to make the loan in the first place.