For a limited time, government backed mortgages available at 3%. Prime loans only, new mortgages and refi's. Extremely low closing costs.
A 3% mortgage refinance would give average home owners a few hundred dollars of additional income every month. That would provide a sustained economic stimulus. The limited time, low rate would encourage people to buy foreclosed homes, reducing supply and stabilizing home values.
30-Year Treasures are currently about 2.8%. It would cost the government nothing!
As existing mortgages are refinanced, the original mortgage is paid off. Money would flow into the banks without TARP and collateralized debt obligations would be destroyed.
Heck, add an optional $10,000 to every mortgage for energy improvements at 1.5%. Made in America only, windows, furnaces, insulation, and solar.
We already own the FHA and Fanny, let's put them to work!