Foreclosure Solution

The number of foreclosed properties on the market and waiting to come on the market has contributed to a downward trend in home values and it appears that the incidence of foreclosures may be further fueled by the downward movement – a classic spiral which requires an outside event or intervention for its interruption.  The federal effort to offer a tax incentive for new buyers was effective but short-lived and the effort to force lenders to renegotiate loans never reached a sufficient volume to impact the market.

It seems to me that it would require at least half of the existing foreclosed properties to be removed from the market to create a sufficient interruption to change the downward spiral.  How to accomplish this is problematic and requires that financial institutions institute significant creativity which seems to be something that they do very well in the capital markets (i.e. derivatives), but at which they have been totally impotent in the mortgage arena. Even in the face of significant losses on mortgage portfolios, it seems that they are in total paralysis, having cranked the foreclosure machine to maximum speed and unable to see any other solutions.

It seems to me that the solution is at hand and available by use of the oldest principle in commerce – supply and demand.  By all accounts extant in the media, Americans are turning from home owners to renters.  It would follow that lenders could turn part of their inventory of “for sale” homes into “for rent” homes, thereby removing product from the oversupply of “for sale” and putting it into “for rent”.  Lenders could use this same mechanism to allow persons in, or close to being in the foreclosure process to remain in their homes as renters, thereby keeping the home from entering the "for sale" market.  Lenders could even use a “rent-to-own” option as one part of the operation.

I would even suggest that the major lenders in possession of foreclosed properties could put together a consortium that would assume the day to day operation of the rental process.

I am sure that there are many perfectly reasonable objections to this idea; however I do believe that there are sufficiently manipulative minds on Wall Street to create a way that this could work effectively and profitably.

Elgut Dlareg