Is it time for underwater homeowners to be given a get-out-of-debt-free card?

Richard Green, director of the USC Lusk Center for Real Estate, also favors the debt-for-equity swap concept to permanently reduce mortgage balances for struggling homeowners. The need is chronic, he says, in places like Riverside County, "where prices aren't coming back to where they were maybe in our lifetimes."

So far, the Obama administration hasn't embraced any ideas for U.S.-led debt-forgiveness or debt-for-equity swap programs, preferring to rely on plans it introduced this year to spur refinancings and temporary loan modifications. Officials have said they believe the programs could keep 3 million to 4 million people in their homes, of the 7 million to 9 million households estimated to be at risk of foreclosure.

But just as the U.S. in the 1930s took over and restructured more than 1 million mortgages via the Home Owners' Loan Corp., some experts believe there is no way around a bigger federal role this time, focusing on outright debt reduction for people who are in far over their heads.

"The idea that these loans are worth face value is a fiction," Green said. "If we don't deal with [reducing] the balances, we're not really dealing with the problem."

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tom.petruno@latimes.com