The cornerstone of the Democratic response to the housing crisis is a proposal by Congressmen Barney Frank and Chris Dodd to expand dramatically the role of the Federal Housing Administration, the government insurer for mortgages to low-income Americans.

Under the plan, the FHA would be authorised to refinance between $300bn (€190bn, £150bn) and $400bn worth of mortgages at 90 per cent of the value of the home, if lenders agree to write down the remainder of the loan. The idea is to help struggling borrowers while giving lenders an incentive to restructure the loan rather than foreclose on the property and dump it on to the market.