An Economic Solution That Would Work

I firmly believe the administration has overlooked the one policy that could turn the hosing market around, stanching many foreclosures and raising the value of the now "toxic" mortgage assets, thereby saving the banks. It is simple (even Cramer has advocated it): Give Fannie and Freddie the financial backing to underwrite mortgages on real property at 4% for 40 years. Open this to everyone who can put down 15%; and add a tax credit for all who buy homes over the next 18 months.

Anyone with brains and the capacity to come up with 15% would be rushing to buy homes tomorrow. I would see that I and all my kids did so. Home values would start rising sharply, encouraging those with mortgages that have put their homes under water to hang on; causing banks to write UP the value of mortgage assets they hold and thereby enabling them to loan capital again; creating a vast buyers market for homes and for all the accessories that go with them.

This goes to the very heart of the problem; and it is fair because it would be open to everyone. And it requires no new government bureaucrats to step into this mess and assess losses. Perhaps this approach is being ignored because of its directness and simplicity. But until we find a "floor" for the losses of housing values, no real solution is in sight.