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Keep owners in homes to help lenders, too
Tuesday, Oct. 21, 2008 | 2:04 a.m.
The current decline in housing values and rapid increase in home foreclosures are a losing situation for both banks and homeowners. What is needed is a way to turn this situation into a win for both parties.
Say, for example, a home has a $200,000 mortgage but is now worth only $150,000 and the owner can no longer afford the payments. If the bank forecloses it will realize less than $150,000 after foreclosure costs, and the homeowner will be displaced.
However, if the homeowner could make payments on a $150,000 mortgage, the bank could rewrite the mortgage and share an equity interest in the home with the owner. Say the home sells for $180,000 in five years. There would be an additional $30,000 in equity to be divided between the homeowner and the bank, creating a win-win situation.
We need some innovation such as this to interrupt the domino effect of foreclosures driving down home prices, creating more foreclosures, which drive home prices down more.
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The McCain plan would work. Help the homeowner will help the banks and the neighborhood.
but a gain for people without their own home, or who still cannot afford a home.
Let the market work, let housing prices come down, let people buy what they can afford.