White House may move to buy mortgages

White House may move to buy mortgages - Personal finance- msnbc.com

It seems to me that this is the root of the problem. Bad mortgage mixed in with good ones and no one wants to trade them around. Maybe there's more to it than that, but buying a $300K mortgage on a house worth $200K for $200 would be a small "punishment" to the bank with the mortgage (similar but easier than what they would get from a foreclosure). The Government could then refinance with the home owner at $200K and then sell that "good" mortgage back into the system.

In this case the government loose NOTHING (but some time value of the $200K).

The down side is two fold

A- The bank holding the "bad" mortgage almost assuredly isn't the bank that MADE the bad mortgage, so we're punishing the wrong bank.

B - The homeowner might not be able to really afford the "new" mortgage either so the government may end up kicking them out of the house anyways. Which is bad PR is they do, and another "bad" mortgage in the system if they don't.