Mortgage debts, too, must be written down.

In November 1699, William finally recommended that Parliament pay the mortgage debt to George, and in early 1700, the debt was honoured.

a rapid reduction of insolvent households debt burden, preceded by a temporary freeze on all foreclosures

Reducing the face value of mortgages and providing the upside in case home prices were to rise in the long run to the creditor banks is another way to convert mortgage debt partly into shareholder equity.

And a stronger economy would help domestic banks by reducing potential bad debt and mortgage defaults.

The housing recession the worst in US history and worsening every day will eventually see house prices fall by more than 20 , with millions of Americans losing their homes.

And, with banks balance sheets having been strengthened, it will be possible to restructure mortgage debts, bank debts, and other private sector debts without destabilizing financial systems.

Many who want to refinance their mortgages still cannot, because they are underwater (owing more on their mortgages than the underlying property is worth).

For example, governments could facilitate the write down of mortgages in exchange for a share of any future home price appreciation.

Forgiveness of underwater mortgages (where the outstanding loan exceeds the home s current market value), as well as reducing the foreclosure overhang of some 1.5 million homes, must be part of that solution.

The Right Weights for Mortgage Risks

Occupy the Mortgage Lenders

So far, the sub prime crisis has had a limited direct impact on Latin America s mortgage markets.

Losses are spreading from sub prime to near prime and prime mortgages, commercial mortgages, and unsecured consumer credit (credit cards, auto loans, student loans).

Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

After the subprime crisis erupted, mortgage and consumer debt was paid down by households either with their savings or by default.

Of course, there is no glee in seeing stock prices tumble as a result of soaring mortgage defaults.

Mortgages became more widely available.

Mortgage brokers were happy to get in on the act.

It was called securitized mortgages.

Unlike virtually every other country, US residential mortgages are effectively no recourse loans.

Indeed, the foreclosure rate is increasing.

The problem was not just sub prime mortgages.

Moreover, the US housing market appears to be stabilizing....Overall, the US mortgage market has remained resilient, although the sub prime segment has deteriorated a bit more rapidly than had been expected.

As a result, mortgage brokers maximize their income by generating larger volumes of mortgages, as do the banks that package these loans into mortgage backed securities (MBS s).

Financial markets responded by demanding much higher rates on the bonds of countries with high government debt ratios and banking systems weakened by excessive mortgage debt.

In Mexico, all mortgages carry fixed interest rates, unlike the infamous exploding ARMs that left US homeowners ruing their choice of adjustable rate mortgages when interest rates rose. Mexican mortgages are indexed to inflation, but the state mortgage agency links that index to the minimum wage and makes up the difference if mortgage interest adjustments for inflation outpace wage growth.

Collateralized debt obligations (CDOs, mainly tied to mortgages) made a new population of aspiring homeowners supposedly creditworthy by enabling the originating banks to sell sub prime debt to other investors.

But mortgage markets remain underdeveloped in most emerging economies.

What is needed is a quick write down of the value of the mortgages.

In the fourth act, the real estate bubble will burst.

Its members could not agree even on how to define subprime mortgages and calculate how many such mortgages there were in the United States at the time of the crisis.

What started with subprime mortgages spread to all collateralized debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi trillion dollar credit default swap market.

So, if internal devaluation is to work, the value of debts, where they already represent a heavy burden, must be reduced. Government debt must be restructured.

The state is an epicenter of the housing bust and the foreclosure crisis.

Around sixty sub prime lenders have already gone bankrupt.

Some limited previous experience with mortgage modifications is not encouraging.

The authorities acquired some of the toxic assets, which over time became easier to value, as a few years of data on mortgage delinquency rates allowed investors to find ways to measure the risk.

Wall Street has polluted the economy with toxic mortgages.

Sub prime mortgages made the American dream come true.

One place to start is the tax deduction for interest payments on home mortgages.

The sub prime crisis has exposed serious problems that we must address.

In practice, the banks have consistently dragged their feet on mortgage restructuring and are laying off staff, rather than hiring people who could help them deal with an initiative of the required scale.

Many banks have already acknowledged their open ended losses in residential mortgages.

The terms of mortgages need to be adjusted to the homeowners ability to pay.