HOW TO SOLVE THE FORECL0SURE CRISIS
2009 was a record breaking year for foreclosures in the United States. The perfect storm of high unemployment, tightening credit, decreasing real estate values and cataclysmic stock market crash resulted in millions of homeowners defaulting on their mortgages. What are the solutions to this problem? Some would argue that the government should intervene and help homeowners. Those with a more “free market” or laissez faire approach would contend that the government should let it play out and the problem will eventually resolve itself. But with the faces of evicted families on every newscast, and Wall Street investors and banks facing collapse, the scenario is one that even the most hardened members of Congress cannot ignore. I believe that there are two fundamental issues with which the government MUST help: (1) Reworking mortgages for current homeowners in an equitable manner, and (2) Educating future homeowners so that this debacle will be read about in history books instead of the daily newspaper. Just as the Congress passed the Securities Acts of 1933 and 1934 in response to the causes of the Great Depression, Congress must again take action to assure high foreclosures are a thing of the past, not the wave of the future.
PLAN FOR CURRENT HOMEOWNERS:
Any homeowner who is more than 30 days in default MUST be contacted by the lender and mediation arranged. I have repeatedly read newspaper accounts of homeowners who said they desperately tried to contact their lender, but the lender did not return their phone calls. I imagine lenders may say the same thing about the homeowners. In any case, clogging the judicial system with slow moving foreclosure cases, is bad for everyone, except the lawyers who make money on the process. I would propose a MEDIATION conference wherein the homeowner and lender must meet with a court appointed official (hearing officer or judge) to attempt to work out a plan. I would hope that mediation would resolve up to 70-80% of the threatened foreclosures. The current foreclosure system has become adversarial at its onset, and that has contributed to the inability of the parties to work out any type of deal. Through open communication, and a skilled and trained mediator, both parties may be able to structure the loan in a way that meets the needs of all.
The primary goal would be to place homeowners in a fixed rate loan with an affordable amount of interest. Any lender that has not fully repaid federal stimulus money would be required to accept a plan approved by the court appointed mediator discussed above. If the homeowner’s income is insufficient to meet a mortgage at 5-6% rate using standard formulas (perhaps no more than 33% of net income), the lender and homeowner could opt to negotiate a 40 year mortgage or a shorter term mortgage (30 years) wherein the lender would get a tax deduction each year (probably for up to ten years) for the difference between...