In the world according to the US Treasury, people will be happy to stay in their upside down homes/mortgages as long as they can refinance. They are planning a scheme that will allow said refinancing regardless of the mortgage to home value deficiency, and in return for their cooperation the lenders will be receiving what’s called a negative equity certificate:

Negative-equity certificates could help servicers limit loan losses and avoid an “avalanche of borrowers who choose to walk away from the mortgage,” Scott Polakoff, the agency’s senior deputy director, said yesterday. The Federal Housing Administration could help homeowners refinance, he said.

The lender will supposedly be able to redeem this “certificate” when the home is sold, recovering their previous loss on refinancing.

Why someone would be willing refinance their home, starting at zero equity, and further agree to forego most if not all of the potential recovery, remains unanswered.

Nevertheless, a sucker is born every day. And unless housing price recovery is swift, you may want to get your hands on some “negative equity certificate” puts.