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I lived in Phoenix in the 80's when the Lincoln savings and loan in the Phoenix area went belly up. SOmehow that landed a HUGE amount of houses on the market. For instance, the homes on my street were about 1300 to 1500 square feet and sold in the 70's and 80's at the time. They were basically starter homes or homes the size that would not have huge air conditioning bills (that is how I sized my house back then, I wanted a summer a/c bill under $200 at that time). Somehow, just on my short, 2 block street, we ended up with 5 or 6 foreclosed homes from this S&L debacle. THe banks were DUMPING those homes on the market for the mid 50's, way below what most of us had loans for. This was back when you had to have at least 10% down to get a house, no matter what. So most folks on my street, if they had to move, ended up giving the houses back to the lenders, which exacerbated the problem. I ended up moving back to California, so I turned my house into a rental and had to take a negative cash flow for a few years until the prices moved back up.

I think they are using this scenario as the reason they passed this bill in Congress. I agree the lenders should be punished for their irresponsible lending practices, however, if all these homes flood the market, responsible, tax paying citizens can be really harmed by the whole market falling apart. I read somewhere that only about 20% of the defaulting homeowners are going to QUALIFY for help because they are that far over their heads with these loans. The ones who do qualify for help WILL have to share any gains they make on their homes later with the government to pay the feds back for their help.

However, I bet if Obama wins and we get a huge democrat majority in Congress, they will pass a law giving THOSE homeowners a break, thus the taxpayers are fucked either which way.