Foreclosure Prevention: Time to do something that works.

The news keeps getting worse. The mortgage delinquency rate is up to 6.6% of all mortgages (as of the end of August). The delinquency rate is an astounding 25% for sub-prime mortgages. Even “Alt-A” mortgages (something between prime and sub-prime) have a delinquency rate of almost 11%; and 14.4% of so-called “option ARMs” (loans that let you pick your payment rate, for a while) are 30 days or more behind.

The Wall Street Journal reports that the efforts (which we have chronicled in this BLOG) of the government to postpone foreclosures while they try to persuade the banks to do something other than taking over the home and selling it, may have had some effect, because foreclosure rates are rising more slowly than delinquencies.

This may be true, but so far there has been no real dent in the number of people being thrown out of their homes. As we have argued before, the best thing to do would be to give bankruptcy courts the right to reset principle balances to current market value and to cap interest rates when there is evidence to show that those steps will be enough to let the owners pay the revised mortgage and keep their homes.

The good news is that this solution is back on the table now that the Bush administration wants to bail out the banks by letting the government take over their assets. The Democrats are trying to get this into the bill over Republican objections.

Another possibility being considered is for the government to issue low interest mortgages to homeowners who cannot afford what they have. Something like this was done during the great depression.

Stay tuned.

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