Interesting proposal here. Similar to cramdown (bankruptcy modification of a mortgage to a lower principle value) but with an added benefit to banks to help them offset the immediate loss. I think it will work in places where people would like to stay but can't afford. It wouldn't work so well in places where there are no jobs and people want to relocate.
As an aside, however, I would like to say that upping the duration of a mortgage from 30 to 50 years really doesn't help much. For a $150k mortgage at 5.25% interest the mortgage payment on a 30 yr loan is $828.31, at 50 years it only goes down to $707.82. Now an extra $100 a month is a fair amount to a lot of people, but the extra 20 years it takes to pay off is, to me anyway, much bigger. The main reason is that interest alone is $656.25, so if you got a 10,000 year loan you would still be paying $656.25 per month.
For very long term loans a small increase in the payment can make a large difference in the time to pay it off. In the example above, an extra $50 per month on the 30 year loan would reduce the total time to pay off by nearly four years.
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