To eliminate the foreclosure inventory and increase aggregate demand in the housing market a mortgage with new terms is needed.
The loan should start with a low interest rate, 2.75%, similar to a 3//1 ARM. Each year the interest rate should increase .25 percent and cap out at 5% like a 30 yr. fixed rate loan. Qualification would be at 5% to decrease the chance of a default. To give people hope that some day in the near future, their mortgage will equal the resale value of their home and so they don't add their home to the foreclosure inventory, underwater mortgages should have their principal reduced monthly with no cost to taxpayers, to maintain the performing mortgage asset at it's highest book value.
NAR, NAHB, Committee For Economic Reform. www.recoverygovforthepeople.wordpress.co