Foreclosure Plan – Is this a Panacea or a Step in the Right Direction?

There was an article in this morning's Inman News Headlines by Glenn Roberts, Jr. entitled "Foreclosure fix: "'The Last Chance Mortgage' - How we got into this mess and how to get out."

The article was in regard to John Vogel, Jr's. plan to not only solve the problem that we're facing but to go one step further.

The plan is the best thing that I've read so far since we've been faced with this dilemma, but I see one major flaw. Let's first look at what the situation is. According to Mr. Vogel, "Two million homeowners are in danger of losing their homes" via foreclosure. What I am understanding is that he is proposing that the federal government administer a program that would refinance these properties facing foreclosure with a fixed-rate mortgage interest of 3.5%. The homes would be assessed at 80% of their current value and the homeowner in concession for participating in this program would give up any future profit from the home's appreciation.

The latter part is what is an issue with me. Yes, I do believe that for the help received the homeowner should pay in one form or another. But this then leads to the question, What incentive is there for the homeowner to keep up the property? I don't see many except for the homeowner to be able to keep the home and not risk foreclosure at this point in time and they would recoup their investment at sale.

The problem that I'm presently seeing is that many homeowners are willing to just walk away from their homes without regard to the financial and credit implications of a foreclosure. I've spoken with two people this week that are planning on such. I've even talked to them in regard to a Deed In Lieu of Foreclosure. One was possibly interested, the other didn't care. I'm sure what I'm seeing is not an isolated incidence.

I think this program has some great merit and is the best that I've come across so far, but I think we also need to possibly go one step further and maybe allow the homeowner to share in the profits at sale. Let's say limit it on a sliding scale depending on the house value, etc. or even just a flat percentage of the profits.

One point that I haven't mentioned so far is that the home property in question would be entered into a pool of affordable housing. Now some of these homes will most likely fit that criteria, I don't see homes in the upper price ranges fitting such.

I do agree with his opinion that a program such as this will free up capital. I further believe that it would increase consumer confidence and help propel the real estate market.

At the same time I also have a question if government intervention is the right answer. Yes, I can the benefits as written above. But the main question that comes to mind is, Will the lesson be learned? I'm afraid to say that even though it will by many, there will be many more that won't learn the lesson and will continue with the attitude - well they bailed me out once, they'll do it again. I don't think that this is far-fetched.

But at least it is a plan and a feasible one at that.


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