Foreclosure Relief

Here’s a promising development. Seattle’s Mayor Nickels announced a pilot program which, through the offices of nonprofits Solid Ground and the Urban League of Metropolitan Seattle, will provide foreclosure relief to householders earning $48,000 to $50,000 per year, about 80% of the mean household income. The program will loan money to forestall foreclosure and provide debt counseling. The loans are limited to $5,000 and the funding is small, $200,000, but the program will be assessed after 6 months to determine its viability.

My guess is that the amount will turn out to be a bit low, as typically people pay their last cent avoiding a foreclosure. By the time a foreclosure is begun they have little money to pay the lender and the cost of curing the default is much higher than the sum of the monthly payments that were missed. Default interest rates, trustee’s fees, attorneys fees, title reports, publication costs and the like quickly escalate the cost of curing a default. It is not terribly uncommon for these foreclosure-related costs to come to $5000.

In reality these will be loans to the vigilant and the informed, as the amount of money offered is most likely to be helpful before the foreclosure has progressed too far and accumulated a lot of extra costs.

The thing about this that appeals to me and which highly recommends it, is that the grant is for a loan and is presumably secured. The borrower agrees to refinance or sell the property to repay the loan. If the borrower is forced to sell the home, the borrower at least gets to receive all the equity in the house. If these loans are properly administered, they should all be repaid, or at least substantially all of them should be. It strikes me as a win-win type of program: the money goes back to the government and the home owner either keeps the house or sells and gets all the equity. The government’s net savings are substantial by avoiding responsibility for any sort of relief to the working family.

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