How to Solve the Housing Crisis

Rather than throwing families out of foreclosed homes, US laws should be changed to allow them to stay and rent

Winston Churchill supposedly said: "You can always count on the Americans to do the right thing, after they have tried everything else." This may prove to be an accurate description of the response to the foreclosure crisis that has followed the collapse of the housing bubble.

The folks in Washington have developed a series of complex mortgage modification schemes designed to keep people in their homes. George Bush put forward the first plan in the summer of 2007. It was entirely voluntary for lenders and came with no government money.

Last summer, Congress developed a package that committed up to $300bn in loan guarantees [1] to support modification efforts. Eight months after the plan went into effect, there were fewer than 1,000 applications and only 52 completed modifications.