Sometimes the answers to the serious problems are so simple, it takes one far removed from the daily brainstorming sessions inside the FED to find a simple solution, which will go along way to reducing the length of the recession and add a stimulus faster than any other proposal currently put forward.
Mark to market value all loans on first homes. The write down will be matched by Fed Funds on the balance sheet as a no interest promissory note. In accounting terms, Credit the Loan Assets, by reducing their value, and Debit Loan writedown loss in the Profit and Loss account. A book entry for capital adequacy issues to be made by Crediting the same amount in a Balance Sheet account called Interest free promissory note from the FED and Debiting a Balance sheet account called current account with the FED.
There will be an immediate reduction in Foreclosures, immediate reduction in mortgage payments on the lower principal, and some kind of amortized capital repayment of say 2% per annum of reduced loan value to satisfy those who feel they are getting a free lunch for being highly leveraged. 75% of the gain on sale of the home, should be clawed back and the whole debt reduction amount will be with the person for life, much like Student Loans.
This will mean those ready to foreclose and declare bankruptcy will think twice as this will be an effective renegotiation of their loan. Those who have already paid off debt or have reduced debt, who are usually the older people and likely to vote in elections will not be mad as these debt reductions are not write-offs, just delayed for the future.
In effect what this will do is immediately release a lot of funds, arising out of lower interest payments direct to the economy by people who are most likely to spend it on immediate consumption, and not pay down debt. This will give an immediate boost to the economy, more immediate than any of the current plans. This will not be inflationary, as the same amount of money is still in circulation, just that instead of interest payments, it will be used to buy consumer goods. The Housing crisis will immediately come down to manageable proportions and the once off hit of even 5 trillion in write-downs will not really have a negative impact as this money will not be released, just an accounting entry to change its format on the balance sheet.
SO LETS DO IT WITHOUT FURTHER ADO BEFORE ITS TOO LATE