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A New Approach to America's Mortgage Crisis: Innovation and Collaboration

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Dancing with the Stars and WikiLeaks may be dominating the headlines these days, but the mortgage crisis persists as one of the biggest challenges plaguing America.

The implosion of the residential mortgage market has caused millions of second mortgage liens to enter default status, placing homeowners in a financially precarious position. Secondary mortgage debt is already estimated at $1 trillion. Experts are projecting 20 percent of second mortgages will go into default, creating an eye-popping additional $200 billion in defaulted second mortgage debt. Worse yet, property values have plummeted to as low as 40 percent of original sales price in the last several years, essentially leaving the value of the second mortgage at zero. 

So far, there have been few solutions for upside down/underwater homeowners and the mortgage lenders and servicers who own these loans.

Too often, homeowners view their only options as "strategic default" or filing for bankruptcy and discharging their debt through the courts, when what they need are more options for being able to keep their homes, continue making their mortgage payments and maintain their good credit standing.

We already know the government isn't going to offer a sweeping bailout; nor can government even singlehandedly solve a problem of this magnitude.

With a crisis as vast and wide as the mortgage meltdown, it's time for innovation and collaboration. It's time for completely fresh ideas. It's time for the public and private sectors, nonprofits and homeowners alike to work jointly on solutions.

Here's one new approach that fits that bill: offering homeowners the opportunity to have their defaulted second mortgage debt forgiven in exchange for performing community service.

That's what we're doing at Raise the Roof, a 501(c)(3) nonprofit that is enabling homeowners with defaulted second mortgages to satisfy their debt through volunteer service. Here's how it works.

Raise the Roof acquires defaulted second lien mortgages from banks and mortgage lenders and offers interested homeowners the opportunity to perform community service projects in association with the HandsOn Network, the nation's largest volunteer network, in exchange for forgiving their second mortgage debt.  

We then connect participating homeowners with their local HandsOn Network affiliate for intake and orientation sessions, and to coordinate their community service hours. Once homeowners complete their volunteer service commitments, Raise the Roof notifies all three credit bureaus that they are free and clear of their second mortgage debt.

This approach offers a win-win-win for homeowners, banks and communities alike.

American homeowners benefit from becoming free of their defaulted mortgages and regaining the chance to rebuild their financial lives. Better yet, many participating homeowners will have the potential to negotiate a new loan modification on their first mortgage lien once their second mortgage lien is removed, as the presence of secondary financing is one of the leading impediments to first mortgage loan modifications. Removing a defaulted second mortgage may well pave the way to financial recovery much faster. Offering homeowners another form of currency -- volunteer service -- with which to pay off their second mortgage debt also creates a new opportunity to promote financial literacy and fiscal responsibility.

Banks and lenders also benefit from becoming free of the defaulted liens that weigh heavy on their balance sheets, as well as from the goodwill they can generate from finding innovative and proactive ways to help their customers.

Lastly, and just as importantly, communities benefit from increased volunteerism and new community service projects. For example if 10,000 participating homeowners each perform 100 hours of community service, that's a total of one million community service hours. Imagine the good that can be done in any community with that kind of volunteer firepower. The old adage "a rising tide lifts all boats" has never been more accurate.

Raise the Roof is poised to launch our beta test in Broward County, Florida -- a community that's clearly been hard hit by the mortgage crisis -- in partnership with local HandsOn affiliate Volunteer Broward and we will be posting updates as it progresses. As we pioneer a new approach to a growing problem, we welcome feedback, ideas and participation from anyone and everyone who's interested in combating the mortgage crisis with innovation, creativity and partnership. While there isn't only one way out of the mortgage mess, new thinking and collaborations are vital to ensuring success.