The current mortgage system creates a dangerous imbalance—homeowners bear all the risk when housing markets decline, while lenders remain insulated. This misalignment leads to preventable foreclosures and amplifies economic instability during downturns. One way to address this could be through a new type of mortgage where payments and principal adjust based on local housing market trends.

How shared-responsibility mortgages could work

Instead of fixed payments, these mortgages would tie the loan balance to a regional home price index (like ZIP-code-level averages). If prices drop 10% in the area, the homeowner's debt and monthly payments would decrease proportionally, preventing underwater mortgages. During price increases, lenders could receive a capped portion of the gains. This creates a natural check on speculative lending—banks would hesitate to issue risky loans if they couldn't offload all the downside.

• For homeowners: Protection against being trapped in negative equity
• For lenders: Potential for higher returns in growing markets alongside reduced defaults
• For the economy: Fewer foreclosure spirals during crashes

Putting the idea into practice

An MVP could start with a pilot program through community banks in stable and volatile markets. The most challenging aspects would be:

1. Creating reliable, tamper-proof local price indices (possibly using existing government data)
2. Restructuring mortgage-backed securities to accommodate equity-like features
3. Educating borrowers about non-traditional mortgage mechanics

How this compares to existing alternatives

Unlike equity-sharing startups like Unison (which act as co-investors) or ARMs (which only adjust for interest rates), this proposal modifies the core mortgage contract itself. The closest existing model is price-level adjusted mortgages tested in Chile, but those adjust for inflation rather than housing prices.

While implementation would require regulatory changes and lender buy-in, the core concept offers a market-based way to reduce systemic risk—one that becomes particularly compelling after regional housing crashes when traditional models fail homeowners.