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Middlebury Economist’s Scheme for Foreclosure Prevention

Middlebury College economist David Colander has launched an alternative to Senator John McCain’s proposed $300-billion bailout of the housing sector. According to Colander, McCain’s strategy is against the principle of accountability for one’s actions. He said that the bailout gives subsidies to Americans who borrowed beyond their capability while giving nothing to others who struggled to live according to their means.

Colander says that the best strategy would be a scheme that would achieve the goals of all stakeholders in the housing market. The scheme should help homeowners save their homes, should help mortgage lenders save their investments, should help communities maintain healthy social structures and should contribute significantly to the stabilization of the housing market.

Colander’s scheme is named Trickle-Up Plan. It aims to help homeowners distressed by foreclosures, help mortgage banks reduce their foreclosure inventories and stimulate buying in the housing market.

The key element in Colander’s plan is the use of foreclosure vouchers. The government would allot foreclosure vouchers to taxpayers according to income levels, with the lowest earners receiving the biggest voucher amounts and with people in certain high income levels excluded from the scheme.

The vouchers are foreclosure vouchers and therefore can only be used in two ways: to buy foreclosed properties or to pay mortgage loans to save homes from foreclosure.

For recipients who cannot use the vouchers because they are not facing foreclosures or are not interested in buying foreclosure properties, they can sell their vouchers on the secondary market at a discount. The discounted vouchers would attract investors to the foreclosed housing market, creating housing demand, restoring home prices and ultimately contributing to the nation’s economic recovery.

Colander asserted that his Trickle-Up Plan relies on a strategy that helps the common man first so that big business can be helped eventually rather than on a strategy that helps big business first so that the common man can eventually be helped.

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