We hear daily about the severity and complexity of our declining economy and about how it will take a relatively long time to work our way out of the current market failure. One thing about which many economists agree is that the decline of house prices and increase in mortgage defaults are a major part of the overall problem. I write to offer a partial, but very simple solution to this situation.

The declining real estate values and increasing mortgage defaults could perhaps be greatly alleviated, if not reversed, by a government-sponsored mortgage refinance strategy. Very simply, the federal government would guarantee new, replacement mortgages for primary residential properties at a standard, subsidized rate of 4 percent for 40 years. To begin, and the first phase could begin very quickly, anyone whose current mortgage is owned by Fannie Mae or Freddie Mac, would simply have to apply for the refinancing and verify his or her owner/resident status.

There would no new money added to the mortgage, only the current principal amount. No one would be excused from paying what is owed. All primary residence mortgages up to the "jumbo" threshold would be eligible. There would be no points, no rate negotiation, and no fees except for title verification and for recording of mortgages and bonds.

These mortgage refinancings would include all income classes and all geographical locations. Home owners could choose to refinance or not. The time period to choose to execute the refinance option in the first phase would be six months.

Any mortgage currently in default would not be eligible. There would be no incentive to go into default; rather there would be significant incentive to stay out of default.

Positive outcomes for the economy would include: stabilization of mortgage markets and real estate values; increased disposable income for purchases of automobiles, food, clothing, or for debt reduction and savings; and a general increase in liquidity. Many "toxic assets" would simply disappear.

What would this program cost? Because no new money would be used to make the new mortgages, there would be no new expenses or new government borrowings. Current expenses would be largely administrative and these would be borne by Freddie and Fannie without hiring additional personnel. Eventually, in subsequent phases of the program, private banks could choose to participate or be required to participate as a condition for accepting any federal "bailout" funds.

David Bussard,

Selinsgrove