Political ideology can corrupt the mind, and science.
- E. O. Wilson
The current housing crisis has hampered the ability of financial institutions to lend and has led to dire national and global macroeconomic consequences. The credit crisis and the most recent bouts of unemployment, GDP contraction, deflation and the retrenchment of the American consumer all have their roots in the American housing sector. It should, therefore, come as no surprise that a major piece of any solution to the credit crisis must address housing issues head on. The valuations of the mortgage-backed securities that are widely held by financial firms continue to deteriorate as mortgage default rates rise. These defaults, in turn, are causing further write-downs on bank balance sheets and consequent contractions in bank lending capacity. Credit will only loosen when mortgage default rates stop increasing. Today, the most expedient means to stem this rising tide is the fast and efficient implementation of drastic and far-reaching loss mitigation techniques by the financial institutions that own or service the nation’s mortgages. Unfortunately, numerous coordination problems, including the decentralized ownership structure of the many mortgages that were privately securitized, have prevented any efforts at loss mitigation from taking hold in a fast and efficient manner. These coordination problems necessitate swift and forceful federal intervention, embodying a standardized and efficient framework for across-the-board mortgage modifications. Unfortunately, to this point, meaningful efforts toward a legislative solution have been hampered by a blind and naive adherence to the sanctity of contract and various notions of fairness.
THE INSUFFICIENCY OF CURRENT LOSS MITIGATION EFFORTS IS THE RESULT OF COORDINATION PROBLEMS
Realizing the need for loss mitigation through loan modification in the current environment, lenders and government sponsored entities (GSEs) have recently announced a series of loan modification and guarantee programs. However, the utilization rates and overall effectiveness of these programs has been spotty at best. A common misconception is that this underutilization derives from a clash between the economic incentives of lenders and borrowers. In reality, loan modifications that include principal writedowns are often beneficial to the relevant debt holder, not just the relevant borrower. From the perspective of mortgage holders and investors in securities backed by mortgages, an individual loan modification is economically advantageous whenever “the net present value of the payments on the loan as modified is likely to be greater than the anticipated net recovery that would result from foreclosure.”
Given today’s falling home prices, high default rates, rising housing inventory, and illiquid housing markets, one respected economist estimated the current recovery rate in a mortgage foreclosure to be thirty-seven cents per dollar of mortgage debt. Insisting on foreclosure in the current environment, therefore, results in an average 63% loss and further depresses home prices, impairing the recovery rate available on subsequent foreclosures. As such, prior to resorting to foreclosure, an economically rational lender should be willing to accept rather steep write-downs to principal and interest if such modifications sufficiently decrease the risk of subsequent default. As Federal Reserve Chairman Bernanke has recently observed, however, “anecdotal evidence suggests that some foreclosures are continuing to occur even in cases in which the narrow economic interests of the lender would appear to be better served through modification of the mortgage.” At least three reasons exist for this “market failure”: (i) an overwhelming volume of delinquent and/or at-risk mortgages, (ii) conservatism and free riding on the part of lenders and (iii) the prevalence of privately securitized mortgages with misincented servicers.
First, the recent high volume of mortgage delinquencies has overwhelmed the capacity of loan servicers, including portfolio lenders, to undertake effective and comprehensive loss mitigation. Individualized loan modification procedures favored in more benign economic times are simply too time consuming to handle this massive wave of delinquencies and defaults.
Second, conservatism on the part of lenders will thwart private industry from creating an effective solution to the mortgage crisis absent compelled coordination by the federal government. Lenders are naturally reluctant to modify any single loan more than is absolutely necessary to prevent default and foreclosure. However, lenders are armed with less than perfect information regarding the minimum level of assistance required to prevent the default of an individual mortgagor, and this problem is now magnified across thousands or even millions of mortgages. The conservatism of lenders may have aided their bottom lines under normal economic conditions, where the absolute number of at-risk borrowers was relatively low and the slow process of information discovery was feasible. In today’s turbulent economic climate, however, this same conservatism has hamstrung lenders.
Furthermore, in the face of the current crisis, the conservatism of lenders has been reinforced by a classic collective action problem. The implementation of aggressive loss mitigation through principal write-downs or similar techniques on a large coordinated scale has the potential to raise the current value of mortgages and mortgage backed securities both directly and indirectly. Directly, aggressive loss mitigation by individual lenders prevents the heavy losses that come from the foreclosure of mortgages held by the lender. Indirectly, aggressive loss mitigation on a large scale will likely increase the present value of mortgages by positively influencing national macroeconomic conditions. Widespread implementation of aggressive foreclosure prevention policies by lenders would undoubtedly slow the downward spiral of home prices (caused in part by escalating foreclosure rates) as well as ease the related pressures on foreclosure recovery rates and negative equity growth. However, individual lenders currently have little or no incentive to be the first to embrace such potentially beneficial policies. A classic collective action problem is at the heart of this inaction. The benefits generated by slowing these spirals are a collective good, a gain to all lenders, and can only be captured through coordinated action among a large number of widely-dispersed lenders. On an individual basis, absent effective coordination, a single lender is not incented to pursue this collective good because of both opportunism (the lure of sharing in this collective good for free) as well as the fear of cheating and free riding by other lenders. Very simply, federal intervention is required to solve this collective action problem.
Finally, a recent empirical study has produced evidence that the coordination problems inherent to loan loss mitigation are significantly exacerbated when the delinquent loan at issue has been sold to widely-dispersed investors as a part of a private securitization. Securitization is the process of aggregating and repackaging a portfolio of otherwise illiquid individual loans into (more liquid) marketable securities that each represent an interest in the future cash flows of the underlying loan portfolio. After securitization, the underlying loans are generally governed by the terms of a pooling and servicing agreement. In the case of a securitized loan portfolio, the relevant lender or loan servicer typically lacks complete autonomy to save troubled loans from default. Instead, the servicer of a securitized loan is constrained by the legal restrictions, real and perceived, imposed by pooling and servicing agreements that are anything but uniform. Moreover, these same agreements mean that servicers that act in a manner that favors one class of investor over another, do so at their own legal risk. Furthermore, many servicers prefer foreclosure over modification, because they stand to receive greater compensation from foreclosure.
THE TWO FACTORS NECESSARY FOR MORTGAGE DEFAULTS: THE KEYS TO EFFICIENT AND EFFECTIVE LOAN MODIFICATIONS
In light of the dismal projected recovery rates from foreclosure proceedings, the hurdle for the net present value of payments on a modified loan to overcome is low. Therefore, before resorting to foreclosure, an economically rational lender should examine the factors that typically lead mortgagors to default.
The first such factor is “negative equity.” Simple logic dictates that negative equity is a necessary condition for a default to occur, because borrowers who are having trouble making their mortgage payments will always prefer to sell their homes rather than default, provided the proceeds can satisfy the mortgage balance. Unfortunately, it is all too common to make the illogical deduction that negative equity is also a sufficient condition for default and foreclosure. Recent empirical research provides strong evidence that a default and subsequent foreclosure requires a second factor, in addition to negative equity: “a household-level cash-flow problem that makes the monthly mortgage payment unaffordable to the borrower.”
Both factors are now prevalent in the American housing sector. As of September 2008, over 18% of all mortgaged single-family residential properties in the U.S. were in negative equity positions and another 5% were approaching negative equity. The news of late has not gotten any better, as home values have plummeted further and will likely continue to fall. The prevalence of household-level cash-flow problems that impair the affordability of monthly mortgage payments, is more difficult to measure, but the national unemployment rate serves as a useful proxy here. As of January 2009, the national unemployment rate has climbed to its decade-long peak at 7.6%, and most analysts predict that unemployment will continue to rise significantly for the foreseeable future. Thus, both of the necessary and sufficient factors for a spike in mortgage defaults are present and growing more ominous by the day. As a result, despite major loss mitigation efforts by GSEs, the Federal Deposit Insurance Corp. (the “FDIC”) and major private lenders and servicers, foreclosures in the United States rose 40.63% in 2008 and 17.11% in December 2008 alone. This sobering data highlights the inadequacy of the numerous mortgage loss mitigation initiatives launched thus far.
THE SUCCESSES AND SHORTCOMINGS OF MAJOR EXISTING LOAN MODIFICATION PROGRAMS
The loan modification programs offered to date do not offer a swift, scalable solution. Instead, these programs have been too slow, too decentralized and too unwieldy and have, therefore, failed to adequately address either the negative equity or borrower cash-flow shocks at the root of foreclosures.
Take for example the loan modification efforts spearheaded by the FDIC at the failed IndyMac Bank. The IndyMac program attempted to attack the foreclosure problem by focusing on the important borrower cash-flow factor. Using a combination of interest rate reductions, forbearance and loan term extensions, the program sought to systematically reduce required monthly payments to 38% of the relevant borrower’s monthly income. The major problem with the IndyMac program is scalability in the face of the unprecedented volume of mortgage delinquencies. The IndyMac program, although more systematic than other ad hoc loan modification programs, is not yet the bold uniform system of loss mitigation that is needed to deal with the current volume of distressed mortgages and mortgages in danger of becoming delinquent. The IndyMac program requires the individual examination and verification of borrower income levels, analysis of the specific terms of individual mortgages and a large team of loan modification employees to initiate contact with distressed borrowers. Furthermore, given the current labor market volatility, the program’s income-centric modifications will likely require repeated iterations as the employment and income status of distressed borrowers change over the coming months and years; and is unlikely to address the short-term, yet drastic, borrower cash-flow shocks caused by sudden unemployment.
The Hope for Homeowners program takes a different approach but is plagued by similar problems. The Hope for Homeowners program allows homeowners and lenders to jointly opt in to a federally insured mortgage on the condition that the lender reduce the outstanding loan balance to no more than 90% of the home’s current market price. Thus, this program attempts to address the foreclosure crisis by attacking the negative equity problem. Once again, however, this program has been plagued by the scalability problems caused by its individualized approach to confronting a large number of at-risk loans. The plan is also hamstrung by its voluntary nature. Lenders are not required to participate and as a result, their natural conservatism has eviscerated the program’s effectiveness. As of the end of January, despite much fanfare, fewer than 400 applications have been processed by the Hope for Homeowners program.
Earlier this month, President Obama offered his administration’s “Making Home Affordable” program, aimed at helping millions of American homeowners refinance or modify their existing mortgages. Under the plan, the refinancing option is available to homeowners with mortgages owned or backed by Freddie Mac or Fannie Mae, where the borrower can display a solid payment history and a reliable income stream and the new mortgage does not exceed 105 percent of the property’s current market value. The loan modification portion of the program, not available on jumbo loans or privately securitized loans, entails loan servicers following a series of steps to adjust monthly payments to no more than 31 percent of a borrower’s gross monthly income. We are skeptical about this limited response to a major problem. The President’s plan seems to have rather arbitrary standards for qualification and is likely to suffer from valuation problems in determining current market values in a fast-changing housing market. In addition, by setting mortgage rates based on the monthly income of a borrower, the loan modification portion of the program might be dealt an increasing series of setbacks should the unemployment numbers continue to accelerate. Finally, the administrative burden of individualized modification determinations is consistent with one of the major shortcomings of prior government efforts.
THE SOLUTION: A FEDERAL MANDATE TO COMPEL COORDINATION AMONG LENDERS TO REACH AN ECONOMICALLY EFFICIENT OUTCOME IN THE FACE OF UNPRECEDENTED MORTGAGE DELINQUENCY VOLUME
In the midst of the current crisis, across-the-board intervention in the mortgage market by the federal government is the only viable solution to address the three major impediments that have debilitated existing private and government-sponsored foreclosure prevention efforts. Only a broad stroke of Congress can compel coordination among widely-dispersed lenders to overcome the problems caused by (i) the overwhelming volume of at-risk mortgages, (ii) conservatism and collective action problems faced by lenders, and (iii) the collective action and agency problems related to securitized mortgages. Through legislation, the federal government can facilitate an economically efficient outcome for all involved.
Such legislation may take several forms, but may include mandates for a combination of across-the-board interest rate reductions, forbearance, and principal reductions. Several foreclosure mitigation plans combining these tools have been offered by leading economists. We make no judgment about the relative merits of these different plans, but we note that any effective plan must aggressively address at least one of the conditions necessary for foreclosures to occur-negative equity and cash-flow shocks-in a systematic and highly stream-lined manner. In delaying serious consideration of such bold action, Congress risks prolonging the hardship on lenders, borrowers, and the economy.
In addition, in order to (i) minimize the potential expectations problem or moral hazard problems that could result from a market hungering for subsequent across-the-board mortgage modifications and (ii) mitigate the effects of mortgages becoming more expensive following such legislation on account of mortgage originators pricing-in the risk of the future repetition of such government intervention, the government should institute a bold and sweeping modification measure in a single aggressive stroke. Policymakers would need to engage in an extensive amount of diligence to determine the parameters of such action. Even with such diligence, sweeping, non-incremental legislation will not be without its risks, but the definite negative consequences of inaction or half-measures far outweigh the risks.
THE CONSTITUTIONALITY OF A CONGRESSIONAL MANDATE FOR ACROSS-THE-BROAD MORTGAGE MODIFICATIONS
At this point, bold, across-the-board intervention in mortgage finance is both good policy and good law. Moreover, it is not without precedent. During the Great Depression, with foreclosures occurring at an alarming rate, and in response to public pressure on lawmakers to ameliorate the metastasizing crisis, state lawmakers enacted various mortgage foreclosure moratoria, granting homeowner-debtors relief from on-going mortgage obligations. In Home Building & Loan Association v. Blaisdell, the Supreme Court joined many other government institutions in permitting such measures.
Blaisdell concerned the rights of a state to enact legislation which interfered in the contractual rights of two private parties. The so-called Gold Cases of the 1930s made clear that the federal government possessed similar authority. Specifically, the Supreme Court recognized the authority of Congress to pass legislation abrogating unambiguous obligations in private contracts to pay debts in gold. Such legislation amounted to a depreciation of the nation’s currency and an intentional repudiation of debtor obligations. In exercising its rightful authority, the Court reasoned that contracts must be understood as having been made with the knowledge of the possibility of subsequent exercise of the government’s rightful authority. Therefore, no obligation of a contract “can extend to the defeat” of that authority. And there exists no Constitutional “ground for denying to the Congress the power expressly to prohibit and invalidate contracts although previously made, and valid when made, when they interfere with the carrying out of the policy it is free to adopt.”
There are four Constitutional doctrines that constrain state interference with private contract, namely (i) the Contracts Clause, (ii) Due Process, (iii) the enumerated powers doctrine with respect to federal legislation and (iv) the Takings Clause. None of these calls the legality of a comprehensive federal mortgage modification bill into question. First, the Contracts Clause does not apply to acts of the federal government, only acts of state governments. Second, under the Due Process Clause of the Fifth Amendment, the Court has held that economic regulations must only satisfy a rational basis test, meaning that such regulations must simply be rationally related to serve a legitimate government purpose. Stabilizing the national economy is one of the “legitimate” purposes of the federal government, and stemming the massive wave of foreclosures through a systematic program of mortgage modification is “rationally related” to pursuing such stability. Third, stabilizing the national economy through foreclosure mitigation clearly falls within the purview of Congress’s power to regulate interstate commerce, which has been broadly interpreted by the Court. Finally, a federal mortgage modification act would likely not constitute a taking, because, as has been generally required by the Court in the regulatory takings context, such an act would meet a rational basis test and would not “prevent almost all economically viable use” of lenders’ property, the loan obligations of mortgagors.
The need to stem the nation’s rising foreclosure problem was recently highlighted by one market commentator very directly:
The problem is that if we don’t address foreclosure abatement in a major, deliberate way, whatever nascent recovery we might potentially get later this year will be cut short by a fresh round of foreclosures as we enter 2010 . . . . The longer our policy makers attempt to solve a deleveraging crisis by assisting lenders but failing to restructure the obligations of borrowers, the longer we can expect the current crisis to persist.
In short, even with all of the “liquidity” or “stimulus” that the government continues to pour into the market, debtors remain too indebted and unable to service their debt loads.
The nation’s current economic conditions and near-term outlook are of a once-in-a-lifetime variety which demands a bold and aggressive response that is just as unique. It is time to seriously weigh the necessity of Congressional legislation requiring the universal application of a prudent combination of the principles of (i) forbearance and term extension, (ii) principal writedowns and reamortization, and/or (iii) interest rate reductions. Such legislation could go a long way toward eliminating the negative equity positions of scores of homes across the nation, mitigating some of the cash-flow problems of individual homeowners, and clarifying and bolstering the value of so-called “toxic assets” linked to housing stock. We believe such legislation addresses foreclosure abatement in a major and deliberate way without running afoul of the Constitution. At the very least, serious dialogue about such sweeping legislation is long overdue.
* Adjunct Professor, Seton Hall University School of Law. A.B., 1994, College of the Holy Cross; J.D. 1997, New York University School of Law; M.B.A., 2001, Columbia Business School. Mr. Macchiarola is a member of the adjunct faculty at St. Francis College in Brooklyn, New York. He currently practices law in New York City. This Article is a private publication of the authors, expresses only their views and does not necessarily represent the views of their firm or any client of their firm. The authors would like to thank Lauren Battaglia, Gerrit De Geest, Daniel Prezioso and Scott Talkov for their thoughtful comments.
† J.D., 2007, University of Southern California School of Law; B.A., 2004, Yale University, Mathematics and Philosophy and Ethics, Politics and Economics.
 See Christine Bahls, E.O. Wilson, 18 The Scientist 13, (2004), available at http://www.the-scientist.com/article/display/14350 (subscription required) (featuring a transcript of an interview with Wilson).
 Promoting Bank Liquidity and Lending Through Deposit Insurance, Hope for Homeowners, and Other Enhancement: Hearing Before H. Comm. on Fin. Servs., 111th Cong. 4 (2009) (Statement of Edward R. Morrison, Prof. of Law, Columbia Law School), available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/morrison020309.pdf. See also Ben S. Bernanke, Chairman, Fed. Reserve, Speech at the Council on Foreign Relations on Financial Reform to Address Systemic Risk (Mar. 10, 2009), available at http://www.federalreserve.gov/newsevents/speech/bernanke20090310a.htm (commenting that “[t]he world is suffering through the worst financial crisis since the 1930s, a crisis that has precipitated a sharp downturn in the global economy”).
 See generally Int’l Monetary Fund, Global Financial Stability Report: Financial Stress and Deleveraging, Microfinancial Implications and Policy (Oct. 2008), http://www.imf.org/external/pubs/ft/gfsr/2008/02/pdf/text.pdf (describing an adverse feedback loop between the financial system and the real economy and the link between the U.S. housing market and the financial crisis). See also Edward L. Glaeser, Why We Should Let Housing Prices Keep Falling, EconomixBlog, N.Y. Times, Oct. 7, 2008, http://economix.blogs.nytimes.com/2008/10/07/why-we-should-let-housing-prices-keep-falling/ (describing the current crisis as stemming from “large numbers of investors betting, unsuccessfully, on real estate”, resulting in the entire global system being put at risk).
 See Les Christie, 11% of mortgages are troubled, CNNMoney.com, Mar. 5, 2009, http://money.cnn.com/2009/03/05/real_estate/record_delinquency_rates/index.htm?postversion=2009030514 (reporting that results of the Mortgage Bankers Association’s National Delinquency Report found that the percentage of borrowers behind in their mortgage payments-but not in foreclosure-rose to approximately 8% during the final quarter of 2008, which is the highest rate of delinquency ever recorded by the survey since its inception in 1972).
 See Morrison, supra note 2, at 4 (describing the causal chain that starts with a spike in home foreclosures and then leads to deterioration of bank balance sheets and then ultimately to reductions in bank lending ability). See also Bert Ely, Banks Don’t Need to Be Forced to Lend, Wall St. J., Jan. 5, 2009, at A15, available at http://online.wsj.com/article/SB123120666040256163.html?mod=djemITP (explaining the role of bank capital and its connection to a bank’s lending capacity).
 For an overview of some of the major residential mortgage loss mitigation efforts launched in 2008, see Michael S. Gambro et al., Cadwalader, Wickersham & Taft, LLP, Clients & Friends Memo: Recent Developments in Residential Mortgage Loan Modification Programs, (2008), available at http://www.cwt.com/assets/client_friend/Recent_Developments_in_Residential_Mortgage.pdf.
 See infra pp. 7-8. See also Press Release, Office of the Comptroller of the Currency, Comptroller Dugan Highlights Re-default Rates on Modified Loans (Dec. 8, 2008), available at http://www.occ.treas.gov/ftp/release/2008-142.htm (noting that data shows that nearly 53% of borrowers who obtained loan modifications in the first quarter of 2008 re-defaulted after six months).
 See, e.g., American Securitization Forum, Statement of Principles, Recommendations and Guidelines for the Modification of Securitized Subprime Residential Mortgage Loans 4, (2007), http://www.americansecuritization.com/uploadedFiles/ASF%20Subprime%20Loan%20 Modification%20Principles_060107.pdf.
 Luigi Zingales, Stop the Bleeding, Hank, Foreign Policy, Oct. 2008, http://www.foreignpolicy.com /story/cms.php?story_id=4493.
 See Helen Chernikoff, Foreclosures Setting, Depressing U.S. Home Prices, Reuters, Jan. 27, 2009, http://www.reuters.com/article/GCA-Housing/idUSTRE50R4EL20090128.
 Ben S. Bernanke, Chairman, Fed. Reserve, Speech at the Federal Reserve System Conference on Housing and Mortgage Markets, available at http://www.federalreserve.gov/newsevents/speech /bernanke20081204a.htm (Dec. 4, 2008).
 Ben S. Bernanke, Chairman, Fed. Reserve, Speech at the Independent Community Bankers of America Annual Convention, available at http://www.federalreserve.gov/newsevents/speech/bernanke 20080304a.htm (Mar. 4, 2008). A major credit bureau estimates that 3.96% of mortgages were delinquent in the third quarter of 2008. TransUnion.com: Mortgage Loan Delinquency Rates Rise for Seventh Straight Quarter, Up Nearly 12 Percent From the Previous Quarter and 54 Percent From One Year Ago, TransUnion.com, Dec. 8, 2008, http://newsroom.transunion.com/index.php?s=43&item=502.
 See Randall S. Kroszner, Is it Better to Forgive than to Receive? An Empirical Analysis of the Impact of Debt Repudiation 3, 27 (2003), available at http://faculty.chicagobooth.edu/randall.kroszner /research/repudiation4.pdf (examining historical data regarding the positive effect on bond prices of across-the-board, government-coordinated debt repudiation under highly distressed conditions).
 An individual lender, especially a small price-taker, stands to gain the most in the short-term by watching all other lenders aggressively mitigate foreclosures and thus slow deterioration in the macro-environment and foreclosure recovery rates, while itself free riding, namely by using the stabilized macro-environment to engage in more foreclosures. Similarly, an individual lender stands to lose the most by engaging in aggressive foreclosure mitigation while other lenders damage future foreclosure recovery rates by not mitigating foreclosures.
 See Tomasz Piskorski et al., Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis, (Univ. of Chicago Booth School of Business, Working Paper No. 09-02, 2008), http://ssrn.com/abstract=1321646.
 See, e.g., Kenneth Kettering, Securitization and its Discontents: The Dynamics of Financial Product Development, 29 Cardozo L. Rev. 1553 (2008) (examining the process of securitization in detail).
 See id.
 See, e.g., Complaint, Greenwich Fin. Servs. Distressed Mortgage Fund 3, LLC v. Countrywide Fin. Corp., Index No. 650474/2008 (N.Y. Sup. Ct. Dec. 1, 2008) (alleging that the terms of 374 Countrywide securitization pooling and servicing agreements require Countrywide to repurchase any securitized mortgage loan that is modified from the relevant securitization trust).
 Morrison, supra note 2, at 19.
 A mortgaged property is said to be in a negative equity position when its market value is less than the face amount of its mortgage(s).
 Christopher L. Foote, Kristopher Gerardi & Paul S. Wilson, Negative Equity and Foreclosure: Theory and Evidence 3 (Fed. Res. Bank of Boston Public Policy Discussion Papers, No. 08-3, 2008), available at http://www.bos.frb.org/economic/ppdp/2008/ppdp0803.htm. See also id. at 7, 12-16. Other commentators have offered alternative models for explaining the incidence foreclosures. For example, one pair of commentators offer a “distress model” and an “option model.” See Todd J. Zywicki & Joseph D. Adamson, The Law & Economics of Subprime Lending, 80 U. Colo. L. Rev. (forthcoming) (manuscript at 26-27), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1106907 (last visited March 22, 2009) (describing one foreclosure model that relies purely on cash flow shocks (the “distress model”) and another model that centers on just negative equity (the “option model”)). These models miss the mark by oversimplifying a complex phenomenon and overlooking the possibility of a hybrid model, such as the foreclosure model offered by Foote, Gerardi & Wilson, which incorporates the contribution of both cash flow shocks and negative equity.
 See First American CoreLogic, First American CoreLogic’s Negative Equity Data Report (2008), http://www.loanperformance.com/infocenter/library/FACL%20Negative%20Equity_final_ 102908.pdf.
 See e.g., Press Release, Standard & Poor’s, Home Price Declines Continue as the S&P/Case-Shiller Home Prices Indices Set New Record Annual Declines (Jan. 27, 2009), available at http://www2. standardandpoors.com/spf/pdf/index/CSHomePrice_Release_012724.pdf; Christie, supra note 4.
 Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics, Feb. 12, 2009, available at http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000.
 See Tessa Moran, Fed’s Evans Says Unemployment Rate to Rise Into 2010, Forbes, Jan. 15, 2009, available at http://www.forbes.com/feeds/afx/2009/01/15/afx5926967.html; see also Liz Wolgemuth, January Unemployment Rate Hits 7.6 Percent: What You Need to Know, US News & World Report, Feb. 6, 2009, available at http://www.usnews.com/articles/business/careers/2009/02/06/january-unemployment-rate-hits-76-percent-what-you-need-to-know.html.
 Press Release, RealtyTrac, December 2008 U.S. Foreclosure Market Report (Jan. 14, 2009), available at http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=5807 &accnt=64847.
 Fed. Deposit Ins. Corp., Loan Modification Program for Distressed Indymac Mortgage Loans, http://www.fdic.gov/consumers/loans/modification/indymac.html#Available (last visited Mar. 10, 2009).
 Id.; See also Rich Gardella and Lisa Myers, Does the FDIC Have a Foreclosure Fix?, MSNBC.COM, Nov. 10, 2008, http://dailynightly.msnbc.msn.com/archive/2008/11/10/1667613.aspx (describing the FDIC’s personalized and time-consuming loan modification procedures in practice).
 See U.S. Dept. of Housing & Urban Development, Basic Facts for Lenders about the HOPE for Homeowners Program, http://www.hud.gov/hopeforhomeowners/lenderfactsheet.cfm (last visited Oct. 3, 2008).
 John Conyers, Jr., Loan Modification Can Stop the Foreclosure Crisis, Wall St. J., Jan. 30, 2009, at A11, available at http://online.wsj.com/article/SB123327754670931503.html.
 Tara Siegel Bernard, Obama Housing Plan: What You Need to Know, N.Y. Times, Mar. 5, 2009, http://www.nytimes.com/2009/03/05/your-money/mortgages/05housingprimer.html?_r=1&em.
 For a recent critique, see Caroline Baum, Obama’s Housing Rescue is American Pipe Dream, Bloomberg, Mar. 10, 2009, http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_baum&sid=aO7q5NiKVtZw (noting that “[o]ne doesn’t have to be a skeptic to challenge the Obama administration’s claim that “Making Home Affordable” will help 9 million homeowners achieve that goal”). Cf. Edward L. Glaeser, Housing Plan: The Virtues of Moderation, N.Y. Times, Feb. 19, 2009, http://economix.blogs.nytimes. com/2009/02/19/housing-plan-the-virtues-of-moderation/ (describing the President’s plan as “moderate”, and offering that “in today’s atmosphere, I view moderation as a triumph”).
 See, e.g., Martin Feldstein, A Home Price Firewall, Wash. Post, June 19, 2008, at A19, available at http://www.washingtonpost.com/wp-dyn/content/article/2008/06/18/AR2008061802634.html; Jack Guttentag & Igor Roitburg, Breaking the Back of the Financial Crisis, Dec. 12, 2008, http://www.mtgprofessor.com/A%20%20Public%20Policy%20Issues/breaking_the_back_of_the_financial_crisis.htm; Christopher Mayer, Edward Morrison & Tomasz Piskorski, Loan Modification Proposal, Paul Milstein Ctr. for Real Estate at Columbia Business School, http://www4.gsb.columbia.edu/realestate/research/housingcrisis/mortgagemarket (last visited Jan. 7, 2009); Zingales, supra note 9.
 See Niall Ferguson, Beyond the Age of Leverage: New Banks Must Arise, Fin. Times, Feb. 2, 2009, available at http://www.ft.com/cms/s/0/85106daa-f140-11dd-8790-0000779fd2ac.html (observing that “moral hazard only really matters if bad behaviour is likely to be repeated”). The typical moral hazard argument against sweeping mortgage foreclosure relief boils down to a simple intuition that “if we bail out . . . homeowners . . . it will only encourage more recklessness”, but “in the case of public-sector intervention during financial crises, evidence for [the] dangers [of moral hazard] is surprisingly flimsy.” James Surowiecki, Hazardous Materials?, New Yorker, Feb. 9, 2009, available at http://www.newyorker.com/talk/financial/2009/02/09/090209ta_talk_surowiecki (examining evidence that the effects of moral hazard are smaller than expected, especially when a bailout is not “certain and quick”). We echo Mr. Surowiecki and concede that moral hazard does indeed have “its costs” and should be minimized where possible but not at the cost of sacrificing the nation’s economy on the altar of “moral-hazard fundamentalis[m].” Id.
 Swift, one-time across-the-board approaches to debt relief such as the approach of the United States government with respect to gold clauses during the 1930s appear to be effective with little long-term negative consequences. Krozner, supra note 13, at 28. See also Horacio Spector, Constitutional Transplants and the Mutation Effect, 83 Chi.-Kent L. Rev. 129, 145 (2008) (noting that “there is a striking difference between” abrogating the legal certainty of contract “once every hundred years” as opposed to “once every ten years”).
 Matthew D. Ekins, Large-Scale Disasters Attacking the American Dream: How To Protect and Empower Homeowners and Lenders, 30 W. New Eng. L. Rev. 351, 355 (2007).
 Fred Wright, The Effect of New Deal Real Estate Residential Finance and Foreclosure Policies Made in Response to the Real Estate Conditions of the Great Depression, 57 Ala. L. Rev. 231, 239-40 (2005) (noting that the statutes generally provided for three different types of relief: delay, extension or price adjustment).
 290 U.S. 398 (1934) (upholding a Minnesota mortgage moratorium statute).
 The “Gold Cases” or “Gold Clause Cases” moniker is given to three companion cases of the New Deal era: Norman v. Baltimore & Ohio R.R. Co., 294 U.S. 240 (1935); Nortz v. United States, 294 U.S. 317 (1935); and Perry v. United States, 294 U.S. 330 (1935). The cases each challenged as unconstitutional Congressional legislation canceling contractual obligations to repay certain debts in gold.
 See Norman, 294 U.S. at 306-11 (noting that the contractual terms of an individual private contract cannot overcome rightful governmental authority).
 Alex J. Pollock, Was There Ever a Default on U.S. Treasury Debt?, American Spectator, Jan. 21, 2009, available at http://spectator.org/archives/2009/01/21/was-there-ever-a-default-on-us.
 See Norman, 294 U.S. at 309 (noting that an agreement “must necessarily be regarded as having been made subject to the possibility that, at some future time, the Congress ‘might so exert its whole constitutional power in regulating interstate commerce as to render that agreement unenforceable or to impair its value’”).
 Id. at 305 (citing Knox v. Lee, 79 U.S. 457, 551 (1870)).
 Id. at 309-10.
 U.S. Const. art. I, § 10, cl. 1.
 U.S. Const. amend. V.
 See, e.g., McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 405 (1819) (stating that the federal government “is acknowledged by all, to be one of enumerated powers. The principle, that it can exercise only the powers granted to it, would seem too apparent . . . . That principle is now universally admitted.”).
 The Takings Clause of the Fifth Amendment to the Constitution generally bars the federal government from taking private property for a public use without paying just compensation. U.S. Const. amend. V.
 See Pension Benefit Guaranty Corp. v. R.A. Gray Co., 467 U.S. 717, 732-33 n.9 (1984).
 See, e.g., United States v. Carlton, 512 U.S. 26 (1994) (upholding a retroactive tax law on the basis that the law was rationally related to a legitimate government purpose); Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976) (upholding provisions of the Federal Coal Mine Health and Safety Act that provided compensation to former coal miners suffering from “black lung disease” on the grounds that such provisions were rationally related to a legitimate government purpose).
 U.S. Const. art. I, § 8, cl. 3.
 See Hodel v. Virginia Surface Mining Control and Reclamation Assn., 452 U.S. 264 (1981) (upholding the power of Congress to regulate even purely intrastate business activities if there is a rational basis for believing that such activities will affect interstate commerce); Gonzales v. Raich, 545 U.S. 1, 32 (2005) (upholding the Controlled Substances Act as a valid exercise of federal power because Congress “could have rationally concluded that the aggregate impact on the national market of all the transactions exempted from federal supervision is unquestionably substantial”). Cf. United States v. Lopez, 514 U.S. 549, 643 (1995) (limiting the scope of Congress’s powers under the Commerce Clause and noting that the “possession of a gun in a local school zone is in no sense an economic activity that might, through repetition elsewhere, substantially affect any sort of interstate commerce”); United States v. Morrison, 529 U.S. 598 (2000) (ruling that the Violence Against Women Act exceeded Commerce Clause powers and warning that the federal government must stop short of taking over the regulation of entire areas of state concern having nothing to do with the regulation of commercial activities).
 See Erwin Chemerinsky, Constitutional Law Principles and Policies 2D §8.4.2, 633 (2d ed. 2002).
 John P. Hussman, There is No Substitute for Mortgage Debt Restructuring, Weekly Market Comment, Hussman Funds (Feb. 9, 2009), http://www.hussmanfunds.com/wmc/wmc090209.htm (last visited March 22, 2009).
 We do not mean to suggest that such legislation should give lenders a wide range of options from which to choose. Instead, we mean that Congress, advised by leading mortgage market experts, should craft legislation that requires all lenders to apply the same specific, well-defined and systematic approach to reduce foreclosures.