OPINION:
The federal government has issued a request for information on how best to dispose of the roughly 250,000 foreclosed houses it has in inventory. The following plan could provide an excellent opportunity to help fix the problem caused by so many people having bought houses they could not afford.
Instead of pressuring lenders to grant distressed homeowners a reduction in principal balance on the loan on their current house, the government could relocate those homeowners into less costly houses in the government inventory, homes these people could actually afford. For example, instead of reducing the borrower’s principal balance by, say, $50,000 to a new balance of $250,000, the government could simply offer to move him into a $250,000 house. The homeowner’s now-reduced mortgage would then be transferred to the new house and owed to the government. This would in effect “sell” the house in the government’s inventory and put the distressed homeowner into a house that he could afford.
Banks could create a similar program whereby they offer distressed borrowers a chance to swap into a cheaper homes in their foreclosed inventory.
Of course, to get the full benefit of this approach, the government would have to jettison its failed loan modification program, which has caused distressed homeowners to remain frozen in place in the expectation of receiving a taxpayer- or bank-funded bailout.
VICTOR CHOLEWICKI
Washington
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