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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.

EARN, a for-profit company, teamed with the nonprofit Northern California Urban Development, an East Palo Alto group that works to alleviate poverty, to develop the program, and is now seeking cities to serve as testing grounds. Shapiro said large banks have expressed interest in the plan, and a small credit union, Community Trust in East Palo Alto, is willing to do the refinancings for Menlo Park, as well as for East Palo Alto, which also is considering the plan.

"This is aimed at keeping people in their houses in their communities, rather than having the houses turn over and flip," said Marc Prioleau, a founding board member of NCUD.