NEW YORK — The U.S. housing market is in bad shape, but John H. Vogel Jr. is a man with a plan.

Vogel, a permanent adjunct professor for the Tuck School of Business at Dartmouth College who spoke during the Real Estate Connect NYC conference Thursday, shared his proposal for saving millions of homeowners from foreclosure through a “Last Chance Mortgage” program.

He envisions a program with a fixed mortgage interest rate of 3.5 percent to benefit those families who are facing foreclosure, though he said it’s not a “bailout.”

Homeowners participating in the program would give up the chance to profit from any appreciation in home values, and the homes would become part of a pool of affordable housing.

Also, homes enrolled in the program would be assessed at 80 percent of the current value.

Creating such a uniform standard “would certainly free up capital. One of the biggest problems going on is the uncertainty in the market right now. This creates certainty,” he said.

The consequences of allowing the market downturn to progress unchecked could be severe, he said.

“Two million homeowners are in danger of losing their homes. If all 2 million households were concentrated in New England, that would be the equivalent of every homeowner in Maine, New Hampshire, Vermont and Rhode Island to lose their homes. That’s the scale of the problem,” he said.

“We had a housing bubble. What we’re seeing is collateral damage — the bubble caused that. Here, the consequences are to families and homeowners.”

The blame for the mortgage market woes is often pinned on “greedy or unscrupulous lenders and naive or reckless borrowers,” Vogel said, and he questioned, “What was in the drinking water that suddenly caused our lenders to become dishonest and our borrowers to become idiots?”

He suggested that there may be more likely contributors to the market decline: a substantial rise in the share of subprime loans; an out-of-whack ratio of housing costs to income; and a long run of house-price increases that allowed some buyers to safely refinance to lower-risk loans.

Buyers who acted recklessly and irrationally in purchasing homes account for a small share of the buyers who face foreclosure — perhaps 10 percent, in Vogel’s estimate.

Predominantly, he said, the largest at-risk group are “people trying for a middle-class lifestyle — people who want a safe neighborhood for their kids” and ended up in over their heads in mortgage payments.

The pool of families in bankruptcy bears resemblance to the pool of families at risk of foreclosure, he said. One in seven families with children will declare bankruptcy, he said, and about half of all recent family bankruptcies are due to medical bills and illness.

Some have said that speculators should “take their lumps” and let the market have its way with fraudulent and greedy lenders who contributed to the downturn, though Vogel said that would do a disservice to all of the families facing foreclosure and the neighborhoods they live in.

“If you’re going to deal with this massive problem and do it in an intelligent and creative way, don’t just solve the problem. Let’s be better off at the end of the day than we were at the beginning,” he said.

Keeping the foreclosure-risk families in their homes would bring stability to them, their communities and the marketplace, he said.

“The worst thing in the world is an empty house next to you,” he said.

In preventing potentially millions of foreclosures, the program would create a permanent stream of affordable housing that would be available for generations to come, he said.

There are already community development programs that administer similar affordable-housing programs, he said, and “loans are not that difficult to administer … and the federal government does that.”

He referenced “arm-twisting” efforts by Bush administration officials to bring lenders to the table to address the foreclosure problem — an industry-backed program was announced last month that seeks to expedite refinancing and loan modifications, such as interest-rate freezes, for a portion of the borrowers facing foreclosure.

Vogel said he tried to make his own plan as simple and straightforward as possible and to avoid complicated formulas and algorithms.

“All I can do is put ideas out there,” he said.


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