The obvious solution is to reflate the prices of the homes, and/or forgive the debt by revaluing mortgages to a reasonable percentage of the new valuations.
For example if a house used to be $500,000, and the mortgage is $400,000, but the house has gone down to $200,000 in value, the new mortgage could be set at $160,000 (80% of $200,000). The remaining $340,000 can be electronically created by the Fed.
And in the years previously, when asset prices increased, should the person who borrowed $350,000 on a $400,000 house, only to see it increase in value to $500,000, have to repay $420,000?
