Faith vs. foreclosure

The Federal Reserve’s rush to rescue Bear Stearns Cos. from bankruptcy has fueled talk of a government bailout for less well-heeled victims of the sub-prime mortgage fiasco: borrowers on the verge of foreclosure and neighborhoods pocked with abandoned properties. Even some banks have begun lobbying quietly for a federal rescue for homeowners, conceding that their own efforts to avert foreclosures aren’t ramping up fast enough.

Similar ideas have surfaced in some state and local governments, particularly in the regions hardest hit by the collapse of the housing bubble. Yet there is stiff opposition in many quarters to the idea of using tax dollars to spare homeowners who have sunk too deeply into debt. Instead, troubled borrowers have been left to rely on community groups, which have tried to help them stave off foreclosure by negotiating more affordable loan terms.

The FAME Assistance Corp., the economic development arm of the First African Methodist Episcopal Church in South Los Angeles, wants to go a giant step further. It’s trying to raise at least $50 million to buy failing mortgages and repossessed properties in its community. It would then offer more affordable mortgages to troubled borrowers, displaced homeowners and others who meet its financial criteria.

FAME Assistance Corp. President Denise Hunter argues that her nonprofit group is better able than commercial lenders to save borrowers from defaulting and to find buyers for empty homes. Its long-term perspective and community mission enable it to provide mortgages with lower interest rates and monthly payments. Although the venture isn’t exactly a charity -- it expects to make money when housing prices rebound -- FAME plans to invest the proceeds back into local neighborhoods.

The group is ready to move quickly, having already started a list of target properties. At this point, however, no lender, foundation or governmental agency has agreed to put money into FAME’s pool. The group also will have to persuade loan servicing companies to sell their troubled mortgages or repossessed properties at a discount -- a price that reflects their current value, not necessarily the amount owed on the loan. That’s a reasonable request, yet some companies have resisted for fear of being sued by investors who own mortgage securities.

Even if FAME’s effort succeeds, it will not be a panacea. Many borrowers can’t be saved from foreclosure because they’re in homes they can’t afford. There’s also the risk that the properties FAME buys will continue to lose value, so borrowers will have to share FAME’s long-term approach to the market. Still, the proposal is promising. If banks want to avoid a homeowner bailout mandated by government, they should throw their support behind this kind of effort.