Suggested Solution for Foreclosure Malaise

October 22nd, 2008 | Tags: Foreclosure Crisis

For more than a year the government has been taking half-hearted measures in a desperate attempt to contain the foreclosure crisis. But all of them have been appealing and trying to appease the financial bodies to no avail. A furious wave of anger is building up which political leaders and financial rulers should be aware of for their own good. It is time the corridors listened to some of the suggested solutions for the foreclosure malaise coming in from economic pundits who are non-partisan and have no axe to grind.

A suggestion made by Daniel Alpert of Westwood Capital needs serious consideration. The suggestion is lined with well laid out thought and precision as he peers into the future with prophetic eyes.

Alpert suggests the passing of a law that will encourage the foreclosure victim to hand over the title deed of the property to the lender. On their part the lender will permit the occupier to continue to stay in the house as a tenant for five years. Rent will be paid according to prevailing market rates. The law will make it mandatory for the lender to agree to this proposal by accepting the deed and the rental arrangement. After five years the renter will have the option to buy back the house at the then market rate from the lender.

The first good thing about this plan is that there is no involvement of the taxpayer’s money in it. In fact there is no need for anybody to give any money. Secondly neither the lender nor the borrower is being allowed to go scot-free unlike most of the other plans. The borrower suffers the pain of losing the deed. The lender suffers the pain of accepting 60% or 70% of what he would have got from a healthy borrower. The rent is also much lower than what it was few years ago. That too will cause pain. So it is pain on both sides without any involvement of moral issues and appeasement.

Alpert summed up his plan by saying that it “admits the truth”. The house owner has no equity and the lender accepts a loss. Sufferings are exchanged without throwing anyone out on the streets and saddling the community with the horrendous problem of vacant foreclosed curses.

Thirdly the plan prevents “massive disruption” of the society and economy. Within five years the market will stabilize with demand rising and renters getting time to find again their financial bearings.