Homeownership — Dream or Disaster?

This article discusses the impact of the foreclosure crisis on the housing prospects of American families. Foreclosure is governed by state law, which establishes a procedure to enable lenders to recover property from defaulting borrowers through a public sale process. States authorize two different methods, judicial foreclosure, in which the foreclosure process requires a judicial hearing, and power of sale foreclosure, in which a trustee can offer mortgaged property to the highest bidder at a public sale after giving twenty days public notice. Judicial foreclosure is administered by state courts in twenty-three states. The power of sale foreclosure process is administered by loan servicers through trustees in the other twenty-seven states. Part I reviews the role that homeownership has played in American society and summarizes the history of federal support for homeownership. Part II examines the housing bubble of the early years of the new millennium and the foreclosure crisis that occurred when the bubble burst in 2008. Part II also examines the roles played by residential mortgage servicing companies that collect and distribute mortgage payments, as well as the role of the computerized mortgages tracking system operated by Mortgage Electronic Registration Services Inc. (MERS) as it interacts with the public land recording system as a nominee for lenders. Part III discusses governmental responses to the foreclosure crisis, including the HOPE NOW Alliance, the FHA HOPE for Homeowners (H4H) program established by the Bush administration, along with the Obama administration’s Housing Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives (HAFA) program. Part IV argues that current foreclosure response techniques such as counseling and mediation can be successful if they become automatic parts of the residential mortgage foreclosure process, are coupled with mandatory loss mitigation requirements for lenders along the lines of the National Mortgage Settlement, and have as a resource a financing cushion for qualified defaulting homeowners, such as a “first priority seed lien” recommended by Professor Christopher Peterson of the University of Utah, S.J. Quinney College of Law. Part IV also recommends that greater attention be paid to the value of renting as a means of restoring stability to the overall housing market