Solutions

Solutions to the National Mortgage Problem

Liquidity: Central banks have expanded their lending and money supplies, to offset the decline in lending by private institutions and investors.

Solvency: Some financial institutions are facing risks regarding their solvency, or ability to pay their obligations. Alternatives involve restructuring through bankruptcy, bondholder haircuts, or government bailouts (i.e., nationalization, receivership or asset purchases).

Economic stimulus: Governments have increased spending or cut taxes to offset declines in consumer spending and business investment.

Homeowner assistance: Banks are adjusting the terms of mortgage loans to avoid foreclosure, with the goal of maximizing cash payments. Governments are offering financial incentives for lenders to assist borrowers. Other alternatives include systematic refinancing of large numbers of mortgages and allowing mortgage debt to be "crammed down" (reduced) in homeowner bankruptcies.

Regulatory: New or reinstated rules designed help stabilize the financial system over the long-run to mitigate or prevent future crises.