At a Congressional hearing of the House Financial Services Committee on Tuesday, speakers explored ways to clear up the subprime mortgage mess.

ARMs (Adjustable Rate Mortgages) have fueled the foreclosure increase when, after the initial fixed part of the loan ends, rates balloon into payments borrowers can no longer afford.

In addition to setting up a rescue fund for borrowers who face short-term problems due to illness or job layoff, recommendations included establishing a bond fund to help pay for borrowers switching out of their ARMs and into traditional fixed-rate mortgages. In cases where consumers fall victim to predatory lenders, the government would refinance loans through Fannie Mae.

Lenders may be willing to go along with these recommendations due to the cost of foreclosures. Typically, a bank loses money on a foreclosure because of costs involved in keeping the house on the books, maintenance and sales commissions. Additionally, houses that have been foreclosed upon sell for less than market value.

Panelists at the hearing included spokesmen for the FDIC, HUD, Fannie Mae and Freddie Mac, various consumer groups and lenders.

If you’re planning on remodeling your house to raise its market value, you’re less likely to recoup the cost of the improvements than you were a few years ago.

The reason is basically that the cost for making home improvements has risen faster than the degree to which those improvements raise the resale value of a home.

Before you launch into a remodeling project at your home, read the advice at Remodeling Online. They have regional maps and data with charts detailing cost vs. value of specific remodeling projects for various regions of the country.

For instance, in Massachusetts you can expect to recoup 79% of the cost of a deck addition but in Oregon you will recoup 91.1% of the project’s cost.

Former Federal Reserve chairman, Alan Greenspan, thinks that the current economic downturn is temporary, according to a report in the Toronto Star. The housing market in particular may not have bottomed out yet but he does not think it will get much worse.

“I think that while we are past most of it there are a lot of negatives … but it is no longer subtracting from the (gross domestic product) growth,” the former Fed chairman said.

For the broader economy, Greenspan offered tempered optimism, citing strong profit margins and capital goods data that are “showing some potency.”

“It’s hard to envisage those two key factors coming at the beginning of a recession,” he said.

He warned that some home buyers might have interest costs increase in the short term, however.

The housing market is looking a little lopsided these days. While the selling prices of homes have gone down by 2.5% over the last year, the price tags on celebrity mansions has doubled, tripled, quadrupled and beyond.

Your average homeowner isn’t going to realize the same kind of profit when selling his home as in previous years, and housing prices are expected to fall further. Buyers are waiting cautiously, hoping to get a better deal a little further down the road.

But celebrity homes are wearing high-blown price tags. The asking price for the 10 most expensive homes rose by 23% in the last year and the average price is $71.5 million.

The gap between “us” and “them” ever widens.