New Idea From Menlo Park City to Contain Foreclosures

May 11th, 2009 | Tags: Foreclosures

A new ideal is being touted by Menlo Park City to contain foreclosures . The snag is that it will entail huge up-front expenses for Menlo Park City. But Andy Cohan a councilman said, “To me, the most important thing is to keep people in their homes and not disrupt families, not take kids out of school. This is the only program on the horizon that does that.”
Known as The Foreclosure Prevention Program it focuses on homes occupied by the owners that are lagging behind in mortgage payments for more than 90 days. The program officials plan to contact the concerned bank requesting them to sell the loan at the current market rate. This would be the same amount the bank would have got if it decided to foreclose but with less costs, less time and less trouble for the lender.

After this the local community bank would sit down to refinance the loan cutting it down to 70% of the fair market value. In effect it would be a “silent second mortgage”. The city would have to invest 30% of the value of the house in cash. The borrower would then have responsibility for 70% of the value of the house and repay it taking advantage of the low interest rates prevailing today. The final benefit would calculate to the borrower paying half of the amount being paid right now towards the mortgage.
The city would retain an equity on the house which it would get back if the house is sold. Assuming that the price would appreciate by that time, the city would get half the appreciation value. If the unit is sold for less than the current price then the city would have to bear with a partial or total loss of its investment because it ranks after the bank that steered through the refinancing.

A for-profit entity, EARN Group is working in tandem with a non-profit body of East Palo Alto, Northern California Urban Development and trying to reduce poverty through development of this programme. It is now looking around for more cities to put to test the viability of this plan. David Shapiro of EARN said that many big banks have showed their interest. For Menlo Park a modest credit union known as Community Trust is agreeable to undertake the refinancing. March Prioleau of NCUD said, “This is aimed at keeping people in their houses in their communities, rather than having the houses turn over and flip.”