This seems to me to be a very old worry--I've been voicing it for months. Why do people want to do mortgage cramdowns? They want to bail out distressed homeowners. And because this will be very expensive, they want to do so in a way that does not involve a direct government outlay of cash. The normal way that the government gets what it wants without paying for it is to make a rule forcing someone else to shell out.
We're fundamentally having an argument about who should bear the systemic risk of a fall in housing prices. There is a sizeable constituency that wants to put the entire price on the banking system, both because they think bankers are ultimately responsible for the problem, and because they think of banks as rich corporations that won't be hurt the way ordinary homeowners or taxpayers would.
This belief seems odd to me, given that we're in this mess in large part because the banking system is in such parlous shape. Moreover, the history of financial crises amply illustrates that ordinary taxpayers and homeowners can end up in pretty dire straits when the banks are too screwed up to lend.
How bad might it be? Carney links to a post from HousingWire that lays out some of the potential pitfalls:
Think of these kinds of government cramdowns as doing it on the faux-cheap. It looks inexpensive, because the government isn't shelling out directly. But making things artificially cheap by hiding the pricetag from yourself encourages you to do things you oughtn't--just ask the current holders of "investment" properties purchased with "innovative" mortgages. In the end, the bill always comes due--and the accrued interest is usually a killer.