So those who have depleted savings on a mortgage for 3 years should suffer now because the government won't stand up to the banks?

Article from way back in 2008 addresses problems with foreclosures and defaults leading to downward spiral of housing prices. 

It is clear that many economists were aware of the problems with housing but there was only the uninformed leading the push to castigate anyone who was behind on a mortgage.  It was little but senseless dither by people who felt it was fair to give the banks billions of dollars for bringing the economy to its knees.  They were the same people waving the banner of trickle down recovery.  All the talk of how giving money to the banks would save the world just turned out to be complete fabrication in order to fleece the public. 

It seems like many people still think people should have endless amounts of money set aside for a rainy day, or in this case a rainy four years of unprecedented unemployment.  I am sick of hearing from people who say this was caused by irresponsible borrowers who bought homes they couldn't afford.  It is likely they could afford it if they were employed, or if banks were willing to work with people in distress.  The talk of foreclosing to turn the market around is just complete nonsense and any one who has any reasonable intelligence and understanding of real estate would understand the problem. 

We are in trouble because Wall Street and Banks wanted to be able to leverage the consistent payments of homeowners.  The interest wasn't enough for them so they wanted to create more liquid derivatives that would bring returns up to 10 fold.  We have not fixed the problem and when we do recovery they system will be in tact and it will happen again. 


"The recently enacted financial rescue plan does nothing to stop this spiral. Credit will not flow and liquidity will not return to the banking system until financial institutions have confidence in the solvency and liquidity of
of other banks. 
Problem is dowwnard spiral in housing prices



Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house. Residential mortgages are generally "no recourse" loans, meaning that if the homeowner stops making payments, the creditor can take the property but cannot take other assets or attach income. Individuals with loan-to-value ratios greater than 100% therefore have an incentive to default even if they can afford their monthly payments, and to rent an apartment or other house until house prices stop declining. When individuals default and creditors foreclose, the property is added to the stock of unsold homes. That depresses prices further, increasing the number and magnitude of negative equity houses.



The prospect of a downward spiral of house prices depresses the value of mortgage-backed securities and therefore the capital and liquidity of financial institutions. Experts say that an additional 10% to 15% decline in house prices is needed to get back to the prebubble level. That decline would double the number of homes with negative equity, raising the total to 40% of all homes with mortgages. The mortgages of five million homeowners would then exceed the value of their homes by 30% or more, which could prompt millions of defaults.



The process of default and foreclosure leading to price declines and further defaults could take house prices far below the long-term sustainable level. But even when prices seem low, prospective buyers will delay buying as long as they expect prices will continue to fall.
The financial rescue plan would bring back the confidence needed to revive the financial system only if the Treasury's asset purchases could eliminate the current impaired securities now held by the financial institutions, and if the remaining securities could be counted on to remain healthy. The legislation will do neither"