Small town America teaches New York media elite a thing or two about the housing market

Oh, you are so bringing back memories of my own youth, Barbara. My own grandparents lived not 20 minutes from there, and my older sister graduated from California State College (now California Univ of PA).

Congrats on the sale of your grandmother's house.
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So it sounds like you're proposing a 3 pronged solution for the housing market:
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1.) Find a way of determining who can afford their houses, (possibly with a loan modification) and do what we can to keep them in their homes, and paying their mortgage.
2.) Provide an option for people who truly cannot afford their homes, to rent them while the bank is looking for a new owner.
3.) It looks like you also eluded to finding a new way for home owners to be able to re-negotiate hopefully without having to first go delinquent. (Though I might be reading too far between the lines on this one)
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This is the first time I've heard of the second approach... renting out houses to their current owners during the foreclosure process. I'm curious what you feel the benefit of this is?
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Keep the house occupied during the foreclosure process, so that the property doesn't degrade as fast, and that neighborhoods don't fall into disarray due to mass abandonment? I can also see it being beneficial to keep another renter on the market (as opposed to this previous owner, now choosing to live with a relative, or renting a room).
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But is this worth it to the banks? Presumably if one cannot afford a mortgage, one cannot afford the interest payments on the value of the house, which would be a break-even point for the bank. Is the prevention of depreciation of the loss worth the lost interest for the banks? Has this been done before or would this be an experiment?
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-MBirchmeier

Oh, and an outstanding article, Barbara. You really laid out the problems and potential solutions well. What I wonder is whatever happened to underwriting during this period? Did banks and others who actually issued the mortgages just give up on it? I know they cared about securitization, and anything could be securitized, but where was the underwriting?

I agree that the human collateral damage prevented would seem to outweigh the financial hit in 'rent' but it seems the banks have been reluctant to take any hit to the bottom line, even if it's in their best interest in the long term.
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My instinct would be it would be worthwhile to let people live in the houses for low rent, to prevent the depreciation associated with foreclosure, but I have no numbers to back that up.
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-MBirchmeier