Brokering Our Way Out of Foreclosures?

Recent proposals by members of the current administration, as well as by both candidates for President, seem to focus on "buying" our way out of foreclosures.  But, an article in the New York Times on Sunday, September 28th, caught my attention because it talked about a way to "broker" our way out of this mess.

In this article, it is reported that the city of Philadelphia has come up with a program that "has averted the sale of almost 80 percent of the (mortgage foreclosure) properties referred to it in its first three months."  It seems almost too simple to be true, but here's what they're doing in the City of Brotherly Love. They have mandated a system whereby borrowers, lenders and a representative of the courts meet to propose and implement (if possible) a modified loan so that borrowers can afford to stay in their homes. No foreclosures are allowed without this meeting of all three parties.  Amazing!!!

The interesting part of this solution is that it works for everyone.  The impact on borrowers is obvious.  They end up with a payment they can afford, are sometimes given some relief for payments that were in arrears, and they get to keep their homes and maintain the American dream of home ownership.  But borrowers are not the only ones who benefit.  The article reports that "the banks had cooperated because agreeing to restructure a loan or forgive some arrears was cheaper than going through foreclosure proceedings." 

Although much of the press about foreclosures seems to focus on fairly recent borrowers who took advantage of 100% financing during a time of maximum home prices, the New York Times reporter tells the story of a woman who was close to foreclosure on a home that she had owned for 23 years.  She had taken some of the equity out of her home to pay for medical bills and found that she couldn't afford the interest rate on her refinanced mortgage. Thanks to Philadelphia's brokered negotiations (termed the Residential Mortgage Foreclosure Diversion Pilot Program), she was able to strike a deal with her lender and keep her home.

At the end of The Times piece, it is noted that the program has caught the attention of  U.S. Senator Bob Casey (D-Pa) who has urged Treasury Secretary Henry Paulson, Jr. to consider adopting the plan nationwide.  Let's hope Senator Casey has some success and give kudos to the City of Philadelphia for such a simple and successful program!

A quick update:  Kevin and I are watching the debate and wondering why no one on either the Obama or McCain camp have latched on to this idea.  

Contributing Blogger - Gretchen Koitz