How about adopting a medical model for looking at the foreclosure/mortgage/economy epidemic?

I suggest this because business-based fixes don't seem to get at the human factors involved, nor do they push money down to where stimulus is really needed. Plus, by the time we figure out whether it's the job of banks and mortgage companies to rescue their customers (a la Dickens' "Mankind should have been my business,") the epidemic will have spread.

Models based on our/government's responsibility to our fellow humans run into trouble primarily because we hesitate when we think about rewarding the people who caused the problem. That's a dead end at this juncture, if there ever was one.

I guess my point is that if the CDC were fighting a national epidemic of dysentary or some kind of weird pneumonia, they wouldn't provide or withhold treatment based on who washed their hands. They would get on with it--find the worst-hit areas and focus on those with appropriate treatment. They would do containment and try to keep further outbreaks from happening in currently healthy areas. 

So how about adopting a disease model? We know that housing is the problem, and that the foreclosure outbreaks began in areas susceptible to sub-prime and ARM mortgages. We also know that foreclosure is contagious--rate resets, foreclosure and fear of foreclosure lead to plummeting housing prices and more foreclosure. In addition, we know that the problem is relatively contained to certain lower-income, high-turnover areas, as well as neighborhoods that developed in the bubble years, but fear and the inability to sell property make the walk-away a possibility in even the least likely neighborhoods.

I would like to ask the group to come up with a treatment algorithm for every mortgage in America, all the way from "Clean bill of health" to watchful waiting, to serious resucitation. I'll start at the two ends of the spectrum.

Clean bill of health: "Did you last purchase or refinance your home before 2000? Have housing values on your street or neighborhood declined by less than 10%? Do you envision staying in your house for more than five years? You'll probably be fine, unless we fail to do something at the other end of the spectrum."

Serious resucitation: "Did you purchase your home during the bubble years? Have values for similar properties in your neighborhood declined by 50% or more? Has quality of life in your neighborhood deteriorated as the result of a large number of foreclosures? Do you need to sell your house soon? Are you thinking of walking away if things don't get better?  You need help, regardless of your income, and so does your neighborhood. You may qualify for a payment-share plan of up to 50%, if you are willing to stay in your house for at least five years. The benefit will be taxable as regular income, and depending on your situation, you may be required to sign a good neighbor agreement. You may be required to share profits with the government when you sell your house in future. (There's no need to refinance--and due to new restrictions and a few technical things like redlining, you wouldn't qualify for a new mortgage anyway, so what's the point?) Our goal is to keep your house occupied and stabilize your family and your neighborhood."

Obviously, there's a set of algorithm questions and a treatment plan for mortgages between these two extremes, but I think you get the idea--let's find and group the questions that allow us to group these mortgages appropriately.  Then, what are the treatments that stem from the answers? (Because the problem is the mortgages--it's not the houses themselves, and even in cases where the customers/brokers screwed up, the need to provide treatment and prevent spread supersedes the hope of somehow punishing the wrongdoers.)

Please contribute! My only request is that you provide fact-based/evidence based ideas, and try not to focus too much on the moral aspect. I'll be following comments and will post what we come up with. And if any of the greater TPM lights (Baker, Reich, Warren?) want to take this cup from me, I'd be fine with that...

Thanks,

erica