J. Michael Collins of the University of Wisconsin – Madison – Center for Financial Security, Maximilian D. Schmeiser of the Federal Reserve Board, and Carly Urban of the University of Wisconsin – Madison – Department of Economics have written Protecting Homeowners: Foreclosure Counseling Policies and Modifications of Mortgage Terms. Here's the abstract:
Millions of homeowners are at risk of losing their homes as a result of being delinquent on their mortgage payments and/or owing more than their home is worth. One consumer-oriented policy response to this crisis is financial counseling for mortgage borrowers. This study examines which borrowers seek default counseling, and the relationship between counseling and the modification of mortgage terms. The results suggest that borrowers most exposed to financial distress are more likely to take-up counseling. They further show that counseled borrowers are more likely to obtain modifications with better loan terms than uncounseled homeowners. These results support the current emphasis by policy makers on default counseling as a means of mitigating the housing crisis and promoting consumer financial well-being.
This may appear to be a simplistic solution but I have a simple mind to match:
Since homeowners have to bear the loss of property value due to doubtful financial processes it would appear equitable that the lenders bear a proportional loss in the mortgage amount.
Then homeowners may not have to default and the health of the RE economy will stabilize.
This is a financial translation of an old UK proverb which says:
What is sauce for the goose is sauce for the gander”