1. Offer lender incentives to reduce the borrower’s mortgage balance.

2. Double the incentives given to lenders to modify second mortgages, such as piggyback loans.

3. Offer incentives to lenders who allow owners to sell their home through a short-sale, rather than foreclosing.

4. Have the FHA help underwater borrowers by taking up to 10% of their mortgage balance.

At this point, you might be in shock. When you purchased your home, you might have actually preferred another property but didn’t buy it because the payments would have been a stretch. You saved for a down payment, have a good credit history, and wanted to make sure you could handle your mortgage. You’re responsible, and you tried your best to do things the right way.

Now, we have people who should have never owned a home getting help. These are the people who took out mortgages they couldn’t afford and didn’t understand. This practice, with all its easy money, contributed to a rapid, unsustainable increase in home values. Lenders are certainly not blameless, but too many people seem to look past the irresponsible behavior of borrowers. Then what happens? They get rewarded by having their mortgage balance reduced, payments lowered, and the ability to refinance into a loan with a lower interest rate. Would you like the same benefits? Sorry, you pay your bills on time, so you’re not eligible. If you had only skipped a few.

By this point, you might be wondering how this is going to be paid for. Like many other things, this program will be paid for using TARP funds. You remember TARP, don’t you? It was the slush fund requested by Hank Paulson and George Bush that never seemed to have a firm plan for its use. Now, it is nothing more than a slush fund to use at the President’s discretion.

1. Not everyone should own a home.

Many will find this statement appalling. After all, isn’t home ownership the American Dream? The problem is that the federal government encouraged home ownership and encouraged relaxed lending standards, which allowed unqualified buyers to receive mortgages. Many of these loans had adjustable rates, didn’t require documentation, or required no money down. Is it any wonder that banks were overwhelmed with bad loans?

This leaves us with another problem: Escalating prices. Once you make it easy for borrowers to get money, you increase the supply of buyers. If the housing inventory doesn’t keep up, prices will rise. As a result, you having rising home prices being brought about by a federal government which haphazardly encourage banks to lend, and banks foolish enough to go along with the feds. Of course, this isn’t the only problem.

2. Force banks to take responsibilty for their loans.

I’m not a fan of over-regulation, but one simple rule could have prevented most of the problems we are encountering in the housing sector: Force banks to keep loans they originate on their books for at least 5 years.

As you may know, many banks would originate loans, collect the fees, then sell them shortly after. Why would the banks care if the borrower was on shaky financial ground? All they had to do was keep churning out loans like a mortgage factory, and their profits would keep increasing. By forcing banks to keep loans on their books for at least 5 years, you ensure that banks will do their due dilligence and believe the borrower will be able to make payments regularly. Since many foreclosures happen within the first two or three years, this is a good way to ensure that loans aren’t being quickly sold off and securitized.

There’s no doubt that less interference by the government and more responsibility from banks could have averted the current economic crisis. It could have also been averted if borrowers had used some common sense by realizing they couldn’t afford large mortgages and actually understood the terms of their loans. Of course, in today’s America, expecting people to take responsibility for their actions seems unacceptable.