Forsaking Foreclosures
WE need a plan that is big enough, bold enough and fair enough to deal with the nation’s foreclosure crisis.
For starters, federal aid should be directed toward those communities with the heaviest concentrations of foreclosures and homeowners at risk. Aid should help cover public safety costs imposed by vacant homes. It should help defray budgetary shortfalls for public schools that lose property tax revenue.
Second, a federal loan modification program for struggling homeowners should prohibit the replacement loan’s principal balance from exceeding the property’s appraised value. It should convert the terms to a long-term, fixed-rate and fully amortizing loan. It should limit monthly mortgage payments, including taxes and insurance, to an amount based on the homeowner’s ability to repay.
Third, for those homeowners who do not have the income to qualify for new financing, a federally financed land bank should buy the property from the lender at a steep discount and rent it to the former homeowner.
And most important, the cost of the loan modifications must be borne by the lenders or, if the loans have been packaged into securities, the investors, who were in the best position to profit from and prevent the crisis. This would provide marketplace stability and be preferable to the loss incurred by the lender at foreclosure.
The foreclosure crisis is a calamity for individual homeowners and a worry to financial markets. And what’s worse, if lenders and investors are allowed to profit from their predatory lending without bearing the full costs, they’ll do it again.
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