But this is comparatively trivial. If you were a bank and you were forced to cram down your mortgages with no share of the upside how would you make money? Well, by raising interest rates on new homebuyers. What effect will this have on home prices? If you raise the cost to borrow appreciably, which cramdowns would likely do, you would depress home values further, as people would be able to afford less then can even now. By the way, this might put more houses underwater.
A better route would be a policy where there is shared risk and shared reward. A homeowner who gets a cramdown should forgo some of the upside, not all of the upside. An own-to-rent proposal a la Dean Baker where the undewater owner is reduced to a renter in lieu of foreclosure would give the owner no incentive to maintain the property.
If we are going to piss away more TARP money this would be a good area to spend it. Create a program: Bailie Mae. Bailie would facilitate cram downs by purchasing part of the mortgage. In order to have your mortgage purchased, the lender must agree to a cramdown. When the house eventually sales, any profit is split into thirds, one third to the gummint, one third to the lender, and one third to the home owner.