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From Boom to Bust: Helping Families Prepare for the Rise in Subprime Mortgage Foreclosures

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Abstract:

While all states have homeownership and foreclosure prevention counseling, only a handful of states sponsor mortgage assistance programs that help qualifying families in danger of falling too far behind on their mortgage payments due to a sudden loss of income, illness or death in the family. Increased federal assistance could expand these programs and enhance those foreclosure prevention programs that do not provide loans. Among the steps policymakers should consider are:

* Federal grants to expand and enhance current mortgage assistance and foreclosure prevention programs and low-interest mortgage assistance to eligible borrowers.
* Federal funds to target key cities and states facing the highest risk of mass foreclosure.
* Provisions to ensure federal agencies assess the effectiveness of each program every three years.
* Strengthen programs that aid families while their mortgage contracts are renegotiated or the property is sold on the market so that the homeowners’ credit ratings are salvaged, allowing for the possibility of future homeownership.

This paper details why the steps briefly outlined above would help ameliorate the current rise in foreclosures. The paper will first examine the causes of the crisis and then look at the structure of state-funded foreclosure prevention programs to illustrate how cost-effective federal support for these programs—particularly in key states—could help families facing foreclosure stay in their homes.