Ziggy, the problem with what you suggest is in the details.
Lets say that the home owner goes to the bank and says "I'm having trouble making my payment" The bank says, we'd like to help. "How much can you afford to pay?" The homeowner says, "well I just lost my job and I've maxed out my credit cards."
How can you help a person like that? He's busted and until he gets a job he isn't paying anyone anything. The bank has to take that property away and put it on the market.
Now once you take care of people in that situation, you can look at ways to help the people who do have jobs and income.
But even there, the mortages were sold and the money for those mortages came from people expecting a certain return. Now, you have to go back to those people and ask them to accept less money, the incentive being that some money is better than no money at all. And what about the people who insured the mortagage? Will they be expected to pay the difference?
There are a lot of parties with cross-connected liabilities here. In some instances the financial vehicles that were used are no longer marketable- that is no one is willing to buy them. The parties stuck with this paper are on the hook and they may not be able to pay, which means that the insured isn't really insured after all.
It is this "creative financing" that has led us to this bubble- non-creditworthy or marginally credit worthy people were lent money to buy homes that they realistically could not afford, by people who were speculating on the rise in home prices by loaning money to lenders. There was so much money and they were so eager to get a return on it, they stopped paying attention to risk. He who invests while ignoring risk, or relying on inadequate measures to recognize the risk, pretty much deserves to loose, doesn't he?
There is no such thing as a "safe" return, not when your countries finances are being run by people who sacrifice soundness for expediency.
I've been sounding this call for years. Some people got it, but most didn't. Now, more of you are catching on, as the real economy gets impacted. Because it took so long for this to be discovered, it will take quite some time for it to unwind.
The government seems intent on reinflating the bubble once again- stimulating the economy into growth. Chances are, that will only serve to stoke the fires of inflation. If they are successful, you will see the stock market rise again.
