Quickly Solving the Foreclosure Crisis

There are said to be almost two million homes that are either in foreclosure or about to go into foreclosure.  It is estimated that more than one million homes will be foreclosed on this year alone. 

There are three main reasons for the foreclosures. One is that the interest rate on the adjustable mortgage has gone up making the payments for interest and principal too high for the homeowners to pay.  A second cause is financial hardship due to our damaged economy and high unemployment rates.  The third main reason is that the homes are now worth less than the money owed on it.  In some cases, the homeowners took out second mortgages to buy personal items figuring their homes would continue to grow in equity.  When they went down in value, not up, the debt exceeded the collateral’s worth.  Some of these homeowners elected to stop making payments since it appeared to be a losing effort.

In all three cases, everyone loses.  The homeowners ruin their credit rating, must move their family from their home and go rent something somewhere else.  The neighbors lose because each foreclosure in their area reduces their own home’s value and tears at the neighborhood.  The lenders lose because they must go months without payment and then must get the families out, fix up their homes and try to sell the homes at as little a loss as possible.


Most of the current programs to reduce this problem are themselves problematic.  The government spending money to help the homeowners is unwelcome now that we face such huge deficits.  To many, government intervention or banking forgiving part of the debt seem unfair remedies for the vast majority who do not have this problem.  Why should banks or taxpayers suffer because a few million families made financial miscalculations?  And how many people buy cars and pay loans on them that always exceed the car’s value, some might ask?

So what can be done to end this problem immediately? You say you don’t know?  You say that there is no way? Hello?

Rent the foreclosed homes to the homeowners until they can make the regular mortgage payment.  The rent would be equal to either the interest of the mortgage, the current mortgage interest rate or the current rental rate, whichever is the least.  The mortgage would be frozen with the principal and interest waiting to be paid when the family is able or when values increase allowing the family to sell without losing a lot of money.

The family gets to stay put.  They do not ruin their credit rating,  do not have to find a new place to rent, and no one has to be the wiser.

The neighborhood gains because it keeps the same neighbors and does not get a group of renters moving in.  The property values are unaffected because there is no foreclosure and the neighborhood maintains its feeling of community.

The bank gains because it continues to be paid for the place, does not have to foreclose and hurt the family, does not have to fix it up and sell it and does not look like the heavy forcing a helpless family to lose their beloved home.  The bank also avoids having other homes in the area lose their value which might make them more likely to foreclose.  

It’s a win-win-win. And it is a pretty obvious solution.  So my only question is why has this not been done?