Take these 350k homes that are now worth 200k and give them government loans at 1% fixed for 30 years. The payment on 350k at 1% is less than 200k at 6%. You could sell these homes to investors who could rent it out at market rate that would pay down the debt. Sure the government will get a crappy interest rate, but its better than the alternative of what we are going thru now right? They could make the loans like those old no qualify 39 dollar transfer loans (i forgot what they were called cause i think its been like 30 years since anyone did those) I mean I know I would take over an over priced home if i got the rate at 1%. Especially if it was a no-qual loan that only cost me 39 dollars to get transfered in my name. Heck, i would take over alot of those as long as market rate for rent was high enough to pay the mortgage.
credit market is shrinking; which part of it you don't understand? When inflation makes debt unattractive; why would anyone gave out more credit?