Several problems here to solve: people are in loans they should have never qualified for in houses that are too expensive and they can't make payments when their rates are adjusted. These loans are on houses that are now worth less than then loan the a lot of the "buyers" probably did not put any money down, so essentially they have nothing to lose by walking away. The banks don't want these houses and the secondary market that holds the loans does not want the houses either.
Solution: create a special Fannie-Mae program that allows these people to refi into a 40 year fixed rate loan. The homeowner gets a chance to stay in the house, but does not get a free ride. The mortgage holder gets to hold a new loan with less chance of default, but worth less than the original loan, so they don't come out whole either. Everyone wins a little and no one loses big. Simple. Too simple to be implemented.
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