In 2006, Americans lost 268,532 homes through foreclosure. In 2007, the number of foreclosures had climbed to 405,000. For 2008, the number of foreclosures is estimated to exceed 1.4 million. These foreclosures have had a ripple effect on our nation’s economy and are a primary cause of the current recession.

The problem is self-perpetuating. Unless bold, decisive action is taken immediately, millions more will lose their homes in the near future because of the recession and its accompanying unemployment.

Partners in America is a proposed program to be operated as a department or within a department of the U.S. Government. It will avert foreclosures by purchasing mortgages already in default or in imminent danger of becoming in default, and rewriting loans on terms that homeowners can maintain.

To save their homes from foreclosure, borrowers will “partner” with the government by relinquishing a small equity interest in their homes.

The Partners in America Equity Participation Loan Program is neither a handout nor a bailout, but an entirely new approach — a quid pro quo arrangement that partners homeowners with the United States government to their mutual benefit. It is a bold plan that will work to virtually eliminate foreclosures.

The following outline highlights the main features of the PIA program. Much work still needs to be done to “flesh out” the details of the program, for, as it’s often said, “The devil is in the details.”

1. To put an immediate halt to foreclosures of single-family, owner-occupied residences.

2. To restore stability and confidence in the real estate market by

a. Recognizing and correcting inaccurate, unfair, and misleading home valuations.

b. Rewriting loans in conformity with actual home values.

c. Making mortgage payments more affordable for each homeowner.

d. Making home foreclosures a problem of the past.

e. Encouraging and promoting home ownership for all who desire it.

No lender may institute foreclosure proceedings or foreclose on any single-family owner-occupied residence, once that homeowner applies for a PIA loan on the property.

Homes with a PIA loan may not be lost through bankruptcy.

The PIA program is available for everyone, but no homeowner is required to participate. It makes no difference whether a person has a home loan that’s current, in default, or in foreclosure—whether a borrower decides to join the program is a matter of personal choice and is entirely voluntary.

No minimum income or credit ratings are needed to qualify for a Partners in America equity participation loan. The only requirements are:

1. The borrower must have an existing loan or loans on a single-family home in the borrower’s name(s).

2. The home must be occupied by the borrower(s) as a primary residence.

3. The existing loan must have been issued one or more years prior to the PIA loan application date.

4. The borrower must have made at least six payments to the lender.

There is no limit to the amount of a Partners in America equity participation loan. The loan amount is based entirely on the appraised value of the property occupied by the borrower / homeowner.

Once a PIA loan is granted, any and all previous mortgages and liens are discharged. There will be a prohibition on placing any junior liens, including equity loans, second mortgages, mechanics liens, or other encumbrances of any kind on the property, except for home improvement loans approved by PIA.

PIA loans will be written as fully-amortized loans, within these parameters:

1. The beginning principal balance shall be 90% of the value of the property, as determined by an MAI appraiser, but not more than the total of all existing loans.

2. The monthly principal and interest payment may not exceed 35% of the borrower’s monthly gross income.

3. The semi-fixed rate of interest shall be set to make the monthly payment agree with paragraph (2) above, but shall not be more than 5.0% nor less than 3.0% per annum, computed in increments of 0.1%.

4. In most instances, the term of a loan will be 30 years. A loan may be written for or adjusted to a term of up to 45 years if necessary to prevent negative amortization.

5. In rare instances, following the above guidelines may still result in negative amortization. Any negative amortization amounts will be added to the principal balance on a monthly basis.

6. The PIA loan will be reviewed every 24 months and the monthly payment recomputed using current borrower income figures, in accordance with paragraphs (2), (3), and (4) above.

7. Should there be a material change in income due to unemployment, catastrophic illness or disability preventing employment, or death of a co-borrower, the borrower may request an early review and payment adjustment, in accordance with paragraphs (2), (3), and (4) above.

Prior to closing a PIA loan, the homeowner will grant Partners in America a 10% interest in the subject property as a tenant in common.

When a PIA-loaned property is sold, PIA will receive 10% of the net sale price (less real estate commissions, if any) and the amount of the principal balance owing, including any accrued amortization and interest. All remaining monies less closing costs will go to the homeowner / borrower.

There are no deficiency judgments or prepayment penalties on PIA loans.

There is no mortgage insurance required on PIA loans.

Homeowners are responsible for all property taxes, property insurance, homeowner fees, and maintenance on properties with PIA loans.

An impound account will be set up to cover property taxes, property insurance, and homeowner fees.

Should a mortgagor cease to occupy the property for more than ninety consecutive days without due cause and without written approval of PIA, full title to the property in fee simple reverts to PIA without further legal procedure.

Should a mortgagor become six months or more delinquent in payments, full title to the property in fee simple reverts to PIA without further legal procedure.

No home owned and occupied by one or more senior citizens (age 65 or older) or other persons receiving Social Security benefits may be foreclosed upon or the title forfeited during the life of the loan or the life of the individuals—even if the principal balance should exceed the property value because of negative amortization.

The maximum monthly payment shall be no more than 35% of the sum of the total Social Security benefits for all owners combined added to the total earned income for all owners combined, and may be automatically deducted from monthly Social Security payments.

Mortgagees of any property in default or foreclosure at the time a PIA loan is applied for will be paid 95 percent of the appraised value of the home as full compensation for discharging their mortgage. Should there be more than one mortgage on the property, payment will be amortized among all mortgagees in proportion to the principal balances of their loans.

Mortgagees of any property that is not delinquent, not in default, and not in foreclosure will be paid 95% of the principal unpaid balance on their loan(s) as full compensation for discharging their mortgage(s).

If a borrower applies for a PIA loan, the lender must acquiesce to PIA obtaining the property on the above terms or the property will be acquired by PIA through eminent domain. In most instances lenders will readily comply to the terms, as they will recover more on a bad loan with the PIA program than through foreclosure.

For mortgages that were bundled into mortgage-backed securities, eminent domain may be the only practical way to obtain clear title to the property. Although this provision of PIA may, to some, seem extreme, it must be kept in mind that extreme and unprecedented measures of many types are going to be necessary to restore our economy.

NOTE: As stated above, most lenders will be delighted to rid themselves of their toxic mortgages under these favorable conditions. However, it could be argued that this provision of the PIA program violates the Takings Clause of Amendment 5 to the U.S. Constitution. There is sufficient case law, however, to provide stare decisis to defeat such an argument. Regardless, it is recommended that Congress officially determine that acquiring mortgages under this program is for a public purpose.

See U.S. Rel. Tennessee Valley Authority v. Welch, 327 U.S. 546 (1946). Also, Kelo v. City of New London, 545 U.S. 469 (2005). With regard to the amount to be paid to lenders, refer to United States v. Cors, 337 U.S. 325 (1949).

Whereas it is desirable to implement the PIA Equity Participation Loan Program as quickly as possible, it would be impractical to do so simultaneously because of the vast volume of paperwork required. Therefore, the program shall be implemented in this order:

Phase 1. Homes with mortgages on which foreclosure proceedings have already been started.

Phase 2. Homes with mortgages on which the loans are more than 60 days delinquent.

Phase 3. Homes with mortgages which are likely to become delinquent because of unemployment, catastrophic illness or disability preventing employment, or death of a co-borrower.

Phase 4. Homes with mortgages on which the monthly payment exceeds 35% of the borrower’s income.

Phase 5. All other homes with mortgages written one or more years prior to the PIA loan application date.

In order to provide employment and to expedite implementation of this program, the applications and other paperwork necessary for obtaining a Partners in America equity participation loan may be prepared by any licensed mortgage lender, title company, bank escrow officer, attorney, CPA, or licensed real estate professional, provided that they successfully complete a PIA training course.

Professionals who serve as PIA lending agents will receive a fee of .25% of each loan, paid upon closing.

PIA loans may be locally closed by title companies and others who are validly licensed to close real estate loans.