Discussions are underway as we speak. The Federal Housing Finance Authority, or FHFA, is tossing the idea around since the original intent of HARP, or Home Affordable Refinance Program, isn't doing much good at all. Currently it can only refinance loans up to an LTV, or loan-to-value, of 105%.  In the areas that were mauled the worst during this housing nosedive, like Las Vegas and large regions in Arizona, California, Florida, that limit is far too strict, helping only a few borrowers. By the way, FHFA is overseeing Fannie Mae and Freddie Mac.

FHFA is actually toying with an LTV of 125% right now, but it can still change higher or lower. Moving the bar higher would look good on paper, yet lenders might be even more averse to jumping on board this plan. If they didn't buy into the 105% program, why would they do this one? Unless, of course, the taxpayer incentives were overwhelming.

The downward spiral of real estate prices in the hard-hit areas, and others, too, would predictably slow down if more homeowners would be able to stay in their properties. That would actually work over time toward stabilizing the entire industry. But is the government the answer here?

What is Wall Street doing about this? Foreclosures will cost banks a lot in carrying and selling expenses and when the time comes to sell the acquired REOs, they get only what the market will give them. Wouldn't it make sense to refinance at market price to begin with, however painful that is, and save on the expenses? Some of that is taking place now, yet it's far from becoming the standard. Why isn't the industry more pro-active in this? Perhaps if Washington withdrew from the scene altogether, then it would be forced to protect itself.