The government needs to act fast
They should start buying these subprime loans form the banks at face and restructure the interest and terms with the homeowner. This bails out the banks and the consumers both.
Its awful, ugly, terrible and damn near inexcusable- but we're past the point of traditional measures. While this will end up bailing out both irresponsible lenders and consumers in addition to those just caught in the crossfire, I don't see what there is left to do. We're already printing up money and throwing it at the banking system and its not working.