A sure sign of incompetence is to continue to follow a losing course of action, only more so. That is what the Treasury is doing in its futile attempts to stem foreclosures (Treasury Weighs Fix to Foreclosure Program, New York Times, Business Section, January 22, 2010).
These attempts to vary interest rates or to write ff value are doomed to failure. The problem is structural: the servicers do not own the mortgages and only the owners can agree to modify the mortgages. As the mortgages have been sliced and diced into a multiplicity of tiny tranches, finding the owners is very difficult and getting all owners of a particular mortgage to agree to modifications is virtually impossible.
There is however an easy solution if only the Treasury could think outside its focus on mortgage modification. The solution is for the treasury to join with each troubled homeowner in a shared appreciation mortgage (SAM). The mortgage value and interest rate are unchanged: the homeowner pays what he or she can and the government picks up the balance. Over time, both homeowner and government build up equity in the home. Over time, the housing market is stabilized. Owners stay in their homes, lives and neighborhoods are not disrupted. I call that a win, win, win situation.
Sent to New York Times
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