How to mitigate the foreclosure explosion

Some one asked me what I thought could be done to help stem the rising tide of foreclosures in California and beyond. I’m far from an expert when it comes to assignment rights and such matters as they relate to mortgages once they are packaged and sold in mortgage backed securities; however, here are a couple of quick thoughts on seemingly common sense ways that should be considered.

A few ways to mitigate the foreclosure process (and save a future credit crunch
as well) is (in my humble opinion):

(1) There are just some homes that
must be foreclosed on. There are bad loans on property that doesn’t
support those loans – there is nothing that can be done with these. Some
excess has to be swept out of the system. As long as everyone can agree
to this then we can get working on the other folks.

(2) People that
have the capacity to repay the loan at the existing teaser rate (but not the
adjustable rate) are offered the opportunity to lock in to some intermediate
rate via a loan modification. This would not be the teaser rate, but
would be an interest rate that they re-qualify for with their current lender
as determined by the modification department and agreed to by the borrower.

(3) People with pay option loans that are facing imminent default due
to loan recasting should be offered a 12-month stepped-recast process that
allows them to return to the full amortized payment over the course of 4
quarterly payment hikes back to the fully amortized payment rate. This
would give the borrower time to either refinance or sell their home prior to
being foreclosed upon.

(4) People with ARMs that are adjusting can
lock in to a fixed rate (similar to #2) but if they have equity available can
take a streamlined refinance to use some equity in the form of discount points
to implement a temporary buy-down on the loan to allow them to ease back to a
higher rate over 2 or 3 years (depending on equity available) affording them
time similar to those in (3).

(5) Do not require borrowers to go late
on their mortgage prior to negotiating loan modifications. Many
servicers do not allow borrowers to discuss loan modifications until they miss
a mortgage payment. It should be easier for home borrowers to be able to
declare "imminent default" to initiate the loan modification process; rather
than having to severely damage their credit by missing a mortgage payment
before that process can begin.

(6) Allowing ARM customers to
drastically reduce their margins on their loans. Some margins are
exceptionally high – 5/6 percent. this makes the rate adjustment
horrific. Margin adjustments should be an immediate spot to start for
lenders with people coming out of ARMs who show a likelihood of defaulting. By taking less margin the monthly payments can be reduced dramatically while still providing a return to the investor.

Those are 6 that I came up with - what do you think can be done?