In return for lowering the principal, the government and the lender each should get a 75/700 or 10.7 percent stake in the sales proceeds from the home whenever the home is sold. In housing markets that are expected to revive to previous peaks and beyond, this would be an attractive proposition for all.
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{SEH}
It is better that local and state governments, rather than the federal government, be involved in the deals because they have a better sense of the urgency and costs of the foreclosure crisis within their own jurisdictions. There may be places where it makes more sense to foreclose the property than to avoid or prolong a foreclosure. These might be places where there are buyers ready to buy the foreclosed property and keep the homes occupied and well-maintained. These might be places where a homeowner who has foreclosed can easily find suitable rental or owner-occupied housing at affordable rates; there, homeowners would simply move into more suitable housing that they can sustain in the long-term.
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Local and state governments are in a better position to make this assessment. There could well be a federal program to provide funding to states to enable them to take part in such programs.
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Thus, a shared equity mortgage as proposed above will divide up the risks between the homeowner, lender and local government, and allow homeowners to sustain their homeownership with positive and growing equity as housing markets revive. And see the genius of this: neighborhoods with homes in which the local government has an equity stake will receive good quality municipal services, and this will revitalize communities and boost the local housing market.
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Nandinee K. Kutty is an economist and a policy consultant. Dr. Kutty has authored papers in peer-reviewed journals of economics and policy. She is an editor of and contributor to a recent book on housing policies in America published by Routledge.
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