Another rational plan to fix housing problems

Another thought for what the government could do to help keep people in their homes who are struggling with their mortgages, without bailing out anyone. I submit this since the politicians seem to be incapable of coming up with a plan which accomplishes the goals instead of bailing out irresponsible people at taxpayer expense.

So, first, identify people who are in trouble (behind on payments, etc.). To qualify for the new program, you must own only one house, and it must be your current primary residence (not interested in helping speculators). If you "own" multiple properties, you must sell all but your primary residence to qualify for help.

Then, establish a criteria for what constitutes an affordable house in general. I would suggest 3x gross annual income, as that is reasonable historically and makes the math for an average loan work. If your house is worth more than 3x your annual gross income, you get no assistance, as you cannot afford that house. Sell it, and buy a house you can afford.

For those who then qualify, the government could create a loan work-out program. A trustee would be appointed to pay bills during the process. During the restructuring process, the person would be shielded from creditors taking their primary residence, and the trustee would pay whatever was determined to be possible to the creditors. The restructuring would not eliminate debt, but rather restructure it so that reasonable payments could be made and the debt eventually paid off (even if the term was extended). Part of this could include changing the rates/terms of the loans, with agreement from the creditor. This period would last until agreements were met, and then the individual would "emerge" from the process and start paying based on the new agreements.

The law could also include a provision to allow people in this situation who are underwater on their loan to give up the home securing the loan, and not be personally liable for the balance. This would allow people to not pay debts significantly higher than the asset value.

Both of these options would, of course, be noted on credit reports, and effect the ability of the individuals to secure future loans for some period of time. To prevent it from being permanent, they should be removed after a set, but sufficiently long, period of time (say, 5-10 years).

What do other people think? Would this work? I'm thinking it would help the people who need it, while not rewarding the people who tried to game the system. It also does sound vaguely similar to some other processes I've read about somewhere...