Foreclosures are taking a heavy toll in both the individuals losing their homes and the banks having to foreclose. Here is what I believe to be a simple, effective approach for banks to take toward delinquent homeowners and investors (and those contemplating letting their properties go) to bring an end to the foreclosure crisis:

Banks take people who are in foreclosure and modify their new payments based on the lower, current value of their property, then raise the payments each year to reflect higher values as properties appreciate (capped at the original loan amount).

This would operate like an adjustable rate mortgage, but mortgage payments would be based on the value of the property, not the interest rate.

In Phoenix, the properties that were selling for $250,000 in 2006 are now selling for about $90,000 to $100,000. In Las Vegas, foreclosure capital of the U.S., homes that were selling for $250,000 are now selling for about $100,000. In Florida, properties that were selling for $250,000 are now selling for $60,000 to $100,000, depending upon the area.

Motivation for homeowners:

  • They don’t lose their property to foreclosure and don’t have to move.
  • They now have a payment that reflects the value of their home.
  • They are able to capture the great interest rates that currently exist.
  • Their credit is not damaged nearly as much as if a foreclosure took place.
  • This program should apply to both owner-occupied and investment property.
  • It would also make sense for commercial property.

Motivation for lenders:

  • Homes would not be vandalized while sitting empty.
  • Lenders would not have to short sell or foreclose and go through this lengthy and expensive process.
  • This would eliminate most foreclosures and prices would be allowed to rise more quickly, enabling the banks to recoup their losses in shorter time.
  • Right now the nation is very frustrated with banks. This would greatly help the banks’ reputation.

For situations where both spouses have lost their job, I would suggest no payments for a set number of months, and then enact this program once one or both are working again.


I have sent these ideas to the President, Congress, and the banking association. If you know of anyone else with influence, please send them these ideas as well.


Contact:

Phone: (949) 885-8180
Email: info@mrren.com