Private Investment Could Pull Those Facing Foreclosure Back From The Brink

NEW YORK (MainStreet) — When Indonesia-native Zackaria Margolang bought a Newark, N.J. house in May 2008 for $435,000, his 30-year fixed-rate mortgage through Countrywide Financial was 5.5% with a monthly payment of $3,200, including taxes and insurance. A bona fide homeowner at 40, the Hilton Hotel prep-cook was living the American dream.

Or so he thought.

Even though he settled comfortably into the three-bedroom, two-bath townhouse, come early 2011 while going through a divorce and supporting his young son, he struggled to keep up with his mortgage, which Bank of America had since taken over. He went into foreclosure, ultimately facing a $466,000 tab with the mounting expense of mortgage loans, mortgage insurance, taxes and foreclosure fees. Though he found his financial challenges insurmountable, he amazingly didn't lose his home.

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That's because New Jersey Community Capital (NJCC) came up with a solution to help distressed homeowners by using private investment to provide mortgage principal reduction, homeowner counseling and vacant property rehabilitation. What kept Margolang from falling off the ledge could offer policymakers a suggestion on how to lessen the blows of a foreclosure crisis. And it's a win for banks along with the homeowners, to boot.

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Despite the fact that 2012 saw big banks – Ally Financial (ALLY), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) – agree to the National Mortgage Settlement, for which they paid out a $25 billion sum to resolve problems related to the 2008 housing bust as settled by 49 state attorneys general, many borrowers are still in dire straits. In the pipeline are billions more in settlements – with recent reports indicating that Goldman Sachs (GS) is exploring a settlement with the Federal Housing Finance Agency (FHFA) for up to $1.25 billion. But the settlement funds don't always make it to distressed individuals or even to state housing initiatives.

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