Avoid foreclosure? Move into a smaller house

In what appears to be a not so novel idea, Professor Michael Zelin of Kent State University posed the following as a method to avoid the foreclosure crisis: trade down. Literally.

Zelin's theory is that borrowers who cannot afford their payments move into a smaller home owned by, you guessed it, another borrower who cannot afford the payments, who then, you get the idea. This seems almost a reverse pyramid, but, as Zelin puts it, this is what people are doing anyway in this current climate. Just not in this orderly fashion. Most people who lose their homes to foreclosure either rent a smaller place or move in with family and friends. Trading rent for a mortgage payment is simply a means of paying less per month. If Zelin's idea takes off (and its hard to imagine the bank's endorsing this or assisting with the procedure of moving homeowners in an orderly fashion), homeowners are trading a too high payment for one that is within their budget.

It is estimated that there will be 3 million foreclosures nationwide. Buying a house will not be an option for any of them with their post foreclosure credit scores. Most will live with family and friends. Some will be able to rent. But many will be what is being referred to as the "floating homeless". The banks, in their slower than molasses approach to loan modification, aren't doing enough to reduce these numbers. Perhaps its time to start thinking outside the box.

South Florida foreclosure rescue firms ordered to shut down

A Palm Beach Circuit Court judge granted an emergency ruling that four mortgage modification operations who are currently under investigation by the Attorney General's Office must cease doing business. The companies are: FHA All Day.Com, Safety Financial Services, Housing Assistance Law Center and Housing Assistance Now.

Two of the companies named above have been shut down. However, when investigators showed up at the businesses, they found employees shredding documents. Investigators reported that among the about to be shredded documents was personal information belonging to alleged clients of the firm.

State regulators have launched 81 investigations against mortgage modification operations, including 14 where lawsuits have been filed. Officials said investigators are looking at 86 additional companies and that the numbers may grow. The Federal Trade Commission also has launched a major crackdown on foreclosure rescue firms with its Operation Loan Lies, announcing 189 actions in 25 states earlier this month.