Foreclosures in Chicago

I was in Chicago last Tuesday. I flew into Midway airport and took a cab to the South Shore Cultural Center. (It's a magnificent old complex alongside the lake.) I was there with American Radio Works producer Laurie Stern to attend a meeting between the head of the Chicago Housing Authority and public housing residents.

I found the drive along Emmett Till Drive and 71st Street (those are the street signs I remember) incredibly depressing. I have never seen so many boarded up homes, many of them nice buildings. Block after block. Street after street. It was the visible sign of the inner-city subprime crisis.

I know public budgets are strained, but I wondered why didn't the city or the state or both come in and create a shared equity mortgage program with the homeowners before they got tossed out on the street? In essence, with a shared equity mortgage the city/state would invest enough so that the homeowner now qualified for a 20% to 30% down payment. The homeowners would then get a prime 30 year fixed rate mortgage. The owners are now in a position to make the debt service payments.(This deal would only be for those homeowners where the numbers added up; I'm assuming that would be many of the homeowners saddled with toxic subprime loans.) The price of homeownership is paying back the state/city the initial stake plus a piece of the eventual gain, ranging between 10% and 50%. There's a lot of flexibility to writing mortgage contracts like this.

The city keeps its homeowners with a stake in the neigborhood. The homeowners still have a piece of the home so they'll have an incentive to maintain the property. And the city/state gets it money back on sale.

I'm sure there are flaws to this idea that I'm not thinking of at the moment. But it sure seems like a better financial solution and social safety net than the current strategy of boarding up home after home.