In 2009, it is estimated the average mortgage was $172,000. If 5 million homes have been repossessed by banks in the current 7 year housing catastrophe, using that average amount as a proxy for the cost would mean a hit to the banks of about $860 billion, far less than the $7.7 trillion in emergency lending extended by the Federal Reserve which we have learned about.
The government could have stepped in, if it had had the resolve, and paid off each mortgage at that cost to save the banks in question who were on the hook, and renegotiated ownership with each homeowner. An additional 10 million plus mortgages today are underwater, and could have been incorporated also into the payoff deal.
For its part, the government could have prevented moral hazard in the arrangement by enforcing foreclosure and assuming ownership where applicable, and expanded its public housing role by radically expanding its owned housing stock and becoming the landlord to the former owners, now transformed into renters.
Why that is not preferable to the current arrangement where we continue to bail out the banks and extend and pretend on housing I do not know. It would be bad, but it couldn't be worse.
Yes, it is a formidable logistical task, not without considerable cost in itself, but we'd have this behind us by now if there had only been resolve and decisive action had been taken.
It takes imagination, and our leaders don't have it, in either party.
