Thank you for the post.  I agree with you wholeheartedly. We have made it too easy for people and entities to escape their obligations. Your proposal creates a "win-win" for everyone.  I think that this should have been done at the very beginning of this whole mess to avoid our current situation.

I do not understand why others do not see it the way that we do. It make me wonder who those in Washington are really trying to help.

That's not a bad idea; but, many home owners would probably want to renegotiate their terms. Perhaps, the home owner should incur some penalty for being granted this option? I don't know. Good idea, though.

Sorry for the cut and pastes. I had to reconsolidate comments as the original post posted about 6 times when AR was having "Proxy Errors".

Atlanta - I am for some penalty for everybody. Arrangements should be made that are fair across the board. Nobody should be really excited about the final solution because it should be bad enough to hurt everybody who made a bad choice a little, but good enough to keep everybody (and the economy) afloat without causing a collapse. Perhaps individual restructuring would be best, but can we trust the lenders and investors not to get too greedy again?

Julie - Sounds like a lender who was willing to suck it up and help the borrower. In so doing, they probably helped themselves as well. Better than a short sale or a foreclosure, wasn't it? Companies that want to stay in business should use that type of common sense and not count on anyone else to bail them out. Essentially they "refinanced" their own adjusting mortgages. That's a pretty good solution as the investor is out of the deal once the home is refinanced. The problem then becomes those darn pre-payment penalties that were added to, yep, you guessed it, those same cruddy loans!

Perhaps the lender allows the borrower to refinance and include the cost of the pre-payment into the new loan. That way, the borrower still pays the penalty, the investor is on their way, and the lender now has a loan with a higher likelihood of performance.

I'm telling you. When the common sense principles aren't being applied, it all boils down to somebody being greedy. Greed isn't going to work when you have a problem this big.

Remember the fate of the monkey:

Just like the monkey, if you want to save your life (...bank...) you have to be willing to let go of the food you aren't going to get. (those ballooned payments).

Mark,

The problem isn't that there is a lack of housing. There is an oversupply of housing. Even those who lose their homes because of inflated payment obligations are still living somewhere in most cases. (Renting)

Sure, you can make the properties cheaper, but you also have to face the fact that there are just fewer incoming first time buyers. And if you pull all these "now" renters out of the rental market (where some of them should have stayed in the beginning), you could introduce a crisis for landlords.

I understand that doing nothing and letting the free market play out sounds disasterous. (And could be.)

We never should have arrived at where we are today. Loose regulations, Foolish business practices, short term thinking. Add in greed and those are the culprits.

Introduce some "emergency" plan may be necessary. But the big picture of how we got here should not be ignored. Just like everything else that goes awry, getting back to common sense and the basic practices of industry will go a long way to getting things back on the right path.

I'm not saying help isn't needed, but we should give help coupled with caution and advice. Throwing money at the problem without correcting the behavior makes us "enablers" and only encourages and creates like problems in our future.

Missy - The problem today is all the pork, isn't it?! Can't they focus on one thing at a time? Especially when it's as critical as this? Politics as usual...

Joan - My proposal isn't meant to be a "final answer". All I wish is that politicians and businesspeople would stand up and accept their role in getting us to where we are today. The first company that takes out a full WSJ ad telling everybody they are sorry they contributed to this crisis but they are going to help "fix" it (and not by asking the government to bail them out) will really earn some respect. Somebody has to stand up and say, "We were irresponsible. We know exactly what we did that was wrong. We're sorry. Here's how we are willing to sacrifice to help fix it."

Will that happen? Unlikely, but it would be nice.

You are absolutely right when you and others say my suggestions will not solve the crisis. 100% correct. But it might just help some families and communities, and lenders and companies...

Remember the story of the starfish?

One day a man came across a boy on the beach who was picking up starfish from the shore and throwing them into the water. The tide had washed up starfish by the thousands, all of which would die outside of the water.

The man asked the boy why he bothered wasting his time throwing any starfish back at all, "After all," he said, "there must be miles of beach with millions of starfish. You can't possibly save them all. Your efforts aren't really making any difference at all."

The boy picked up another starfish, threw it back into the ocean and said, "I made a difference to that one."

The market is made up of a bunch of people. With enough people determined to make a difference, great things could happen. The question will be if the corporations (banks, investors) are willing to help contribute to the solution with action.