Which Properties do we save? We need to prioritize which type of foreclosure properties we attempt to address first. I believe that we should begin with those that are the "Principal Residence" of those still in their homes, but are in danger of being foreclosed upon. Homes with childern should be at the top of the list. These groups are such that when they are foreclosed upon it creates the additional burdon on cities, states, the federal government and ultimately taxpayers, of having to locate and pay for alternative housing for them. The loss of their home may also result in the loss of their employment, compounding the problem. We then identify those with legitimately bad loans, where the homeowers (w/children first) are in danger of losing the home, or where exotic ARM loans have reset and increased payments to the point where the homeowner can no longer afford the payment, or loans that were clearly misleading.

Minimize the Burden, Share the Expense? We cannot simply pay off the mortgage and make the lenders of these troubled mortgages whole again. And we cannot gift taxpayer money to these homeowners just because the value of their investment has decreased. It would be unfair to have neighbors taxes going towards saving the homes of their neighbor's, when the taxpayers may be stuggling to retain their own homes. Bailing out the lender or the owner would be of uncalculable expense, and would burden the Treasury and the US Taxpayer beyond our capacities.

We should create a shared risk, shared benefit approach. The Treasury is able to borrow money at the lowest interest rates in the world, approximately 2% per year. When a property owner and lender agree that a foreclosure action is likely to take place, they contact the Treasury and apply to the TARPFORECLOSURES program. Once accepted, the Treasury writes a new mortgage for the current market value of the property, at a reduced interest rate, amortized over 30 years.

The Benefits to all concerned:

To the Mortgage Lender: An appraisal on the subject property is done, and a current market value is agreed upon. Since that figure (current market value) represents the true existing value of the outstanding note, it also represent the best case scenerio in dollars for a noteholder who is planning foreclosure. Therefore, this current market value would also constitute the price the Treasury purchases the mortgage note from the lender. Foreclosures tend to sell for less than other similar properties in a market due to factors such as lender motivation to get the REO property "off the books", the burden and liabilities the buyer may have regarding the eviction of the prior owner/tenants, the unknown condition of the interior of the property, back real estate taxes, etc. And falling real estate values means that time is money. Tomorrows' market value is likely to be less than todays'. So a lender would be able to receive "fair market value" for the property, in a time where prices have continued to fall. The lender will also save the tens of thousands of dollars in legal fees they might otherwise have to spend to take possession of the property. It is a Best Case scenerio price for the mortgage lender. The foreclosure crisis feeds upon itself.. the more foreclosures that hit the market, the less all properties are worth.. supply and demand. Therefore, by reducing the number of forclosures hitting the market under the TARPFORECLOSURES Plan, real estate values can begin to rebound, and the remaining troubled assets have a chance to gain in value, owners who are upside down in their mortgage might even begin to gain equity in their properties, enabling them to sell instead of having to walk away. Benefitting all concerned. Those lenders who are not inclined to join the TarpForeclosures plan will risk further loss of equity come the time they do foreclose, so there is considerable motivation for them to cut their losses through the plan. A $200,000 loan on a property that is now worth $150,000 is not a $200,000 loss.. it can be a $50,000 loss if they act prudently and agree to join the program to mitigate their losses. Some degree of loss is reasonable, after all, that is the risk they took and one which made them massive profits for over a decade.

To The Homeowner: The homeowner, in their primary residence, will be able to continue living in their home. They can retain their jobs, their family can remain together, their children can remain in school, and they will not need to look to the goverment to find food and shelter. Many of these foreclosures are due to the resetting of Adjustable Rate Mortgages (ARMs). If an ARM mortgage of $200,000 reset to 9%, the monthly payment based on a 30 year amortization is $1,609 per month. Total interest paid over those 30 years is $379,328. If the TARPFORECLOSURES Program could give that homeowner a $200,000 30 year mortgage at 3%, the monthly payment would go down to a much more manageable $843 per month. Total interest paid would be $103,554. When you consider that the average monthly rent in Boston (Boston.com article 10/29/08) is $1,659, it is clear that a family that cannot afford $1,609 mortgage payments, then they can't afford $1,659. And we're talking millions of people.

To The Government / Taxpayer: As previously noted, the cost of simply bailing out the Mortgage Lender or the Homeowner is prohibitive. So instead of bailing out either of the parties, the govenment buys the mortgage note at the value of the property. Since the Mortgage Lender has already taken the financial "hit" it was going to take anyway, the new note is now secured with real estate that is of equal value to the new loan. Assuming the Treasury can borrow money at 2%, lending money at 3% is considerably cheaper than simply "giving" money to the parties. If the actual cost to the Treasury is higher than 3%, the rate charged the homeowner would also be higher.

The Upside: In order to qualify for this advantageous financing option, the homeowner agrees to give the Treasury a 50% interest in the future equity in the property, to be realized upon the sale of the property under a recorded lien. The Treasury, having purchased in a down market, with the express intent of increasing real estate values, can expect that most of these TARPFORECLOSURES will become more valuable over time. The base value where the 50% equity begins to apply is the value of the mortgage that the Treasury has given the homeowner. As the property increases in value, so does the profit realized by the Treasury/Taxpayer.
 

Turning a Problem Into a Solution:

* The Government and Taxpayers need not spend billions if not trillions to stop the foreclosure crisis.

* The Government and Taxpayers are placed in an equity position for a relatively small risk or expense.

* Because these foreclosures wont be flooding the market, they will help in driving up values the overall real estate market.

* Families who might otherwise be on the street, having to be taken care of by the Government / Taxpayers, can stay in their homes.

* Families will have more affordable housing and will have a renewed equity stake in their homes. Keeping families together.

* Neighbors wont have additional taxes to help out their neighbors or worry that foreclosures will bring down their property values.

* Mortgage Lenders get fair market value for troubled assets, and can avoid legthly legal expenses involved in the foreclosure process.

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