I can't think of a worse possible solution to this problem.

The lenders need to recast their mortgages like CW does on their more exotic stuff. (CW is instituting a cost free refi for their exotic programs and setting fixed rates on their portfolios so that Wall Street will buy them.)

The problem isn't as much with the borrower willing to pay as much as it is the lender not able to sell off the now high adjustable rate portfolios. (due to the inevitable default). Injecting the much needed cash to continue to originate.

Getting the Fed involved can only lead to distasterous consequences. The entire real estate industry needs further pruning on all sides, title included. The honest to god professionals of real estate will weather the storm and the quick buck artists will make their exit.