Tweak the bankruptcy codeJudges already have the power to shrink or vaporize many debts, like credit card balances and mortgages on investment properties. This idea, supported by Sens. Richard Durbin (D-Ill.) and Christopher Dodd (D-Conn.), would let judges reduce primary home loans as well.
The pros: The plan could save hundreds of thousands of people from foreclosure without costing taxpayers anything, say consumer advocates. And it's a minor change, so it could happen fast.
The cons: The Mortgage Bankers Association says its members would have to raise rates on all home loans by as much as 1.5 percentage points to compensate for the risk of court-imposed losses.
By Stephen Gandel, Money Magazine senior writer
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