The Last Chance Mortgage Fund
by John Vogel, Adjunct Professor of Business Administration and
Associate Faculty Director for Corporate Citizenship, Allwin Initiative for Corporate Citizenship
Imagine that every homeowner living in Maine, New Hampshire, Vermont, and Rhode Island were facing foreclosure. That is the situation today, with two million families now on the brink of
losing their homes. And now we've also got a second housing crisis in full swing: a lack of affordable housing.
We can solve both problems at once, and do it in a cost efficient and humane way. I'm calling this plan the "Last Chance Mortgage" fund.
Homeowners want to keep their homes. Lenders don't want the hassle and publicity that accompanies massive foreclosures. And the government doesn't relish the idea of an industry or homeowner bailout. So we could set up a mortgage fund by selling government bonds and using a little taxpayer support. The fund would let homeowners refinance their current mortgages at a fixed rate of three percent.
This Last Chance Mortgage isn't a free pass for homeowners. Families who take this mortgage would give up the right to sell their house at a profit. If we'd done this 10 years ago, when the median price of housing was $122,000, we'd now have a stock of housing that teachers and firemen could
afford.
The Last Chance Mortgage is also not a bailout for lenders. Plenty of lenders lent out large amounts of money for overpriced housing.
Now, they take a haircut.
All the major lenders would have to agree to accept a maximum of 90 percent of the appraised value of the house as repayment for their mortgages, even if that means a loss.
One question that always comes up is, If homeowners can't make a profit, will they continue to maintain their houses?
To solve that problem, we'd require homeowners to escrow a small percentage of their mortgage payment for repairs and maintenance.
The Last Chance Mortgage won't save everyone. But it's better than holding hearings while neighborhoods fall apart.
John Vogel teaches real estate and nonprofit management at the Tuck School of Business at Dartmouth.
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