Pent up demand

Cramming Down - On Whom?

I don't think this is a solution. You can bet they will drop the principal just enough to put the borrower up to his eyeballs in debt vs. six feet underwater. So any future hiccup in cashflow puts them right back into foreclosure.

Not to mention the issue of refinancing these people into 30 year fixed mortgages at historically low interest rates. How do you think those assets will look (assuming they don't default first) 5-10 years down the line? Especially if, as I expect, our little ZIRP-TARP adventure results in high inflation/high rates.