Menlo Park's City Council tonight will consider an innovative approach to preventing foreclosure for struggling homeowners - but one that comes with a big up-front price tag for the city.
"To me, the most important thing is to keep people in their homes and not disrupt families, not take kids out of school," said Councilman Andy Cohen. "This is the only program on the horizon that does that."
The Foreclosure Prevention Program targets owner-occupied homes with mortgages more than 90 days past due. Program administrators would approach the bank that holds the defaulting mortgage and ask it to sell the mortgage at the home's current fair market value - the same amount the bank would receive if the home went through foreclosure, but with fewer expenses and less time and trouble for the bank, said David Shapiro, CEO of the EARN Group, a Los Gatos company that develops real estate financing tools.
A local community bank would then refinance the mortgage for about 70 percent of the home's fair market value. In what is essentially a "silent second mortgage," the city would put up about 30 percent of the home's value as a cash investment, leaving the homeowner with a mortgage for 70 percent of the home's fair market value at today's low interest rates. The homeowner's monthly housing costs potentially could be halved, EARN said.
The city would have an equity stake in the home. It would get repaid when the home is sold (assuming it sells for more than today's price) and would also receive half of the home's appreciation above the current market value. If the home sells for less than today's price, or is lost to foreclosure, the city could lose part or all of its investment, because it would be in second place after the bank that did the refinancing.
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Tuesday, May 05, 2009
SF Chronicle Article on Our Project
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