Shared Appreciation Mortgages

Realistically, some lenders will see it in their best interest to reduce the principal of outstanding mortgages. The transaction costs of foreclosing on a home and the value lost is a huge. However, reducing the principal and interest of some outstanding mortgages is an incomplete solution. It is only fair that if lenders write down principal that they participate in the upside when the house is ultimately sold. There is already a way to do this very thing, but some tax regulation stands in the way.

This keeps the loan alive, the family in their home and the property occupied and maintained. Unfortunately, the IRS can’t make up its mind whether such a transaction is an equity investment or a debt instrument, so it has created a vast body of rules before such a mortgage can be created, making the transaction costs so high that a SAM is feasible only for large commercial transactions.
-- Seeking Alpha, "Regulatory Reform: Change We Can Believe In," 2/20/09

New rules and regulations that are likely to come will try to regulate for the last crisis. It will do nothing to prevent a future crisis, and they may reduce the flexibility to avert a crisis or innovate. The greatest supporters of change seem unwilling to allow prices to change too much on certain assets, permit ownership of real estate to shift to other investors, or make individuals to accept the consequences of their over investment in real estate.