Why isn't it a good thing for bankruptcy judges to write down mortgage debt?

Well, look at how much you pay in interest on your credit cards.  Then look at how much you pay in interest on your auto loan.  Then look at how much you pay in interest on your home loan.

The credit card is what you pay for unsecured debt, all of which can be wiped out in bankruptcy. The auto loan is what you pay for a secured loan that can be modified in bankruptcy.  The mortgage rate is what you pay for a loan that can't be modified in bankruptcy.

There are other differences, of course; autos depreciate faster than homes, and they're easier to hide from the repo man.  On the other hand, they're usually a lot more liquid, shorter term, and represent a smaller chunk of income.

You can't get around the fact that if bankruptcy judges can write down mortgages, lenders will demand to be compensated for the potential losses.  That means everyone who doesn't end up in bankruptcy pays more to subsidize those who have, and also, it will be even harder for higher default risks to get mortgages.

There's also the fact that you're going to encourage a lot more bankruptcy.  This will be bad for an already very fragile financial system, and it won't necessarily be better for the bankrupts.  Generous bankruptcy is one of the better innovations that America has come up with, and we're still a world leader there.  But by late 2005 it was clear that people were taking it too often; if you can get by without declaring bankruptcy, you're almost certainly better off not doing so.