Whatever Washington has thrown at the ailing housing market so far hasn't had much of an impact. The latest plan was called TARP, the Troubled Asset Recovery Program, that has done very little to stabilize the messy situation. It has cost untold billions to no avail. The key still appears to be to halt foreclosure growth that would then help stabilize prices that in turn would lay down a firm foundation where the housing market can stand on.
One avenue to arrest foreclosures is to work with the investor community that owns mortgage-backed securities. About two-thirds of home loans out there were securitized into bonds and are now in the portfolios of large-scale investors. Earlier work-out plans by Fannie Mae, Freddie Mac, Citigroup and others haven't made much of dent at all because the contract terms of these bonds prevent any adjustments without the bond holder's permission. They would lose money if they accepted new terms and therefore have refused to play along.
Instead of pouring truckloads of money into banks why not offer the mortgage-backed security owners a subsidy so that they would then have incentive to go along with modifications with a bite. All it would require is to shift some of the already allocated funds into this sector. This idea would bring under the same umbrella a large chunk of outstanding mortgages that could be massaged accordingly to keep distressed borrowers in their homes.
Arresting the spread of foreclosures would go a long way in keeping home values from sinking further and that's what this market seems to need more than anything else. The investors might be the solution to it.