First, I'm at work and haven't had time to read all the responses. If anyone's already covered the gourns I will, I apologize.

The problem isn't martgages that have already defaulted, it's securities that have been bundled in such a way that the issuers will default at some time in the future, as some fraction of the underlying mortgages do default.

So I don't see how to accomplish what you want without eitehr guaranteeing the mortgage-backed securites (which is helping the debt-writers, not the home-owners) of guaranteeing in advance that home-buyers who degfault on their mortgages will have the tab picked up by the government so they can stay in their homes.

As bad of a moral hazard any other option is, I think telling home-buyers that there's no future consequence for not paying loans they currently have outstanding is a much more extreme invitiation to bad behavior.

Perhaps the govenment could pick up the mortgages and take ownership of the homes, grant the defaulting home-buyers a long-term lease, and sell the properties to an organization more suited to being a landlord.