As foreclosures continue to rise, there is renewed interest in a homeownership vesting plan that met with only a tepid reception when first introduced in March.

Rep. Joe Sestak (D-Pennsylvaia) says his bill (HR 1356) addresses many of the concerns raised by the Congressional Oversight Panel (COP) in its recent report on the administration’s efforts to stem foreclosures.

According to the COP, the current housing relief efforts lack scope, scale, and permanence because they leave out many homeowners, cannot keep up with the wave of foreclosures, and have yet to prove that loan modifications can be made permanent.

The Homeownership Vesting Plan addresses these shortcomings, Sestak said. The plan would split the mortgages of qualifying homeowners into two pieces – a 30-year, fixed-rate FHA-insured loan with a balance equal to 97.5 percent of the home’s current appraised value and a non-amortizing, no-interest loan from the Treasury equal to the difference between the original loan amount and the new FHA loan.

Every year that the homeowner remains current on the new FHA loan, a fifth of the balance owed to the Treasury would be forgiven, so that it would be paid off after five years. If the homeowner defaulted on the FHA loan during the five-year vesting period, the non-vested portion of the Treasury loan would be repaid first.

To incentivize cooperation from mortgage investors, the plan provides mortgage servicers $1,000 for each loan modified.

As originally conceived the plan could avoid further loss of $1.1 trillion in household wealth to approximately 1.7 million homeowners, Sestak said.

The Pennsylvania congressman has enlisted the support of well-known Moody’s economist Mark Zandi for his plan. In a joint conference call, the two men said that immediate action is necessary as an additional 250,000 foreclosures are initiated monthly and foreclosure starts are forecast to reach 12 million by 2012 as adjustable rate mortgages reset in the next two years.

Zandi estimated the vesting program would cost taxpayers $50 billion, which could come from the remaining funds in the Troubled Asset Relief Program (TARP).