102,762 New Listings - Last update: December, 04 2009 - 08:12 AM EST
Adjunct Professor Michael Zelin has a unique solution to the housing crisis. He suggests that the foreclosure problems can be solved if the borrowers started moving down the ladder in a systematic way. Right now the piece meal approach involving individual borrowers and lenders is not having any noticeable impact.
For instance let us suppose there are three troubled borrowers having respectively taken loans worth $200,000, $1000, 000 and $50,000. According to calculations it is found that the lender forfeits nearly half the original loan amount when pursuing the foreclosure crisis. Thus if all three are foreclosed upon the bank would undergo a loss of $175,000. Those who had borrowed would of course lose everything including their down payments and every cent they had paid to bring down the loan.
What Zelin suggests provides an option for all the three troubled borrowers. Instead of seeing their house go in a negative legal process that leaves black marks on their credit history they can deed the house to the lender and then move down the ladder into the next cheaper houses that is within the range of their affordability.
Borrower A who has taken a loan of $200,000 can move into the house of B who is burdened with a loan of $100,000. B can move into the house of C who has a loan of $50,000. Now only C remains to face the foreclosure. It means not three but one foreclosure for the lender. This will result in the cutting down of the bank’s cost from $175,000 to $100,000.
It has to be admitted that theory is one thing and reality another but the concept does deserve a chance to be worked out. After all behind each and every move are ideas and plans. It will firstly require plenty of coordination. Zelin thinks it is best for each lender to start dealing with his own portfolio comprising of the delinquent borrowers.
Another question that remains hanging is about the person who gets off the last rung of the ladder – our borrower C. In all probability C comes from the minority group living in a poor locality. Immediately the hue and cry of discrimination will be raised. Without allowing the situation to snowball into something ugly the lender with many vacant houses under its control can easily rent out one to C. It would serve the double purpose of reducing the inventory numbers and providing a family with a roof and shelter.
Related Posts
- Latest White House Plans Will Not Help Only Few Foreclosure Victims
- The Trial Against Bank and Developer For Defrauding Foreclosure Victims Has Been Delayed
- Help for Foreclosure Victims Badly Needed
- Battered by Foreclosure Problems in Vallejo
- Fewer Foreclosure Victims Helped By Lenders In May
2 Responses
[...] is going through a tailspin. Unemployment has reached a record high and people are defaulting on mortgage payments. Hence, foreclosures have become very common. People are leaving the homes that they had [...]
[...] by Brookings Institution as the top city in poverty count. Today the virus has spread, thanks to foreclosure and in many cities people are putting up shanties prompting by the need to survive. Encampments are [...]