Right-to-rent legislation would require a different view of government

[eridani]

http://www.truth-out.org/dean-baker-the-role-government-and-the-foreclosure-crisis63395

This explains the value of a program like the Home Affordability Modification Program (HAMP). Only a small fraction of the people who enter this program will end up with a permanent modification that will actually allow them to accumulate equity. However, the entire time that they work with the program, they keep sending a mortgage check to the bank -- and the government kicks in some taxpayer dollars as well. This is a real win-win from the standpoint of the banks as they get more checks from the homeowner than would otherwise be the case, plus the subsidy from the government for stringing homeowners along.
Those who have the competing view -- that the role of government is to foster a strong economy and help the bulk of the population -- instead support measures that would directly help homeowners. For example, bankruptcy cram-down would make it easier for homeowners to declare bankruptcy and hold onto their homes.

Even better, the government could pass "right to rent" legislation as proposed by Representatives Raul Grijalva and Marcy Kaptur. This bill (HR 5028) would allow homeowners to stay in their home as renters for up to 5 years following a foreclosure. During this period, they would pay the market rent for their house as determined by an independent appraisal.

This bill would provide real housing security to homeowners facing foreclosure. It would also prevent a glut of vacant foreclosed homes from driving down property values and destroying neighborhoods. In addition, it would give banks more incentive to negotiate meaningful modifications with homeowners, since it would make the foreclosure route much less attractive. The Grijalva-Kaptur bill also would require no new government bureaucracy and would cost the taxpayers nothing.

But right-to-rent legislation would require a different view of government -- one that believes the government is responsible for helping ordinary people. As we know, the government is controlled by those who believe in redistributing money to

[jtuck004]

1. I'm not necessarily for or against that, but let's say you have

an asset (house and land) sitting there valued at X dollars. The mortgage was paying X percent, which is very likely paying income to someone's retirement fund. Now that will be cut off, and what happens to the retiree? Who pays the property taxes on this rental?
Who owns the house? If it could have been sold now for more than it can be sold for in a couple of years (a distinct possibility), who makes up the difference? Who pays for and does the upkeep, the taxpayers? If there is a lien taken out on a repair, who owns the home and how does the small business recover? If people are just barely making it, and their house is right on the line, maybe they just go for this and figure they will be better off in 5 years, instead of digging in a trying to make it. What happens if they become unable to pay the rent? And when it all ends, if the homes are still having their values propped up by such a program instead of floating to whereever market values are, will we just see another problem down the road?

What if the small, community bank or savings and loan did everything right, got them a good mortgage, and the homeowner lost their job and can't pay for the home? Does the small savings and loan have to take a loss which threatens their bottom line and the jobs of their employees? Some of these small banks could dozens of these mixed in with their good loans. Is the government going to compensate them for the loss?

Maybe it would be better to foreclose, offer the house for sale on the market, and if the government wants to buy it and rent it out they can do so?

I know this is a feel good article, but it raises more questions than the solutions it offers, I think.

[eridani]

2. Isn't the presumption that "right to rent" means that the renter/former owner

--would be doing the maintenance?

[jtuck004]

3. Renters don't always do the maintenance, and since they have no

stake in the outcome, as this seems to sound, if there is a biggie like a sewer or water line, or furnace, etc - they may just walk away, and one is left with the house again. Again, with no recourse.

Can full o' worms...

[eridani]

4. I'd say their motivation is to eventually become an owner again n/t

[jtuck004]

5. In some worlds that might be possible, but given that even today

a lot of people in rent-to-own contracts don't keep up with the home repairs (in my experience with a number of these) I think the chances are low.

But even if they do, there are much deeper issues than that. Nothing in this proposal says they get the house back, and even if they do, who is going to foot the bill for making it cheaper? The money that is owed right now very likely came from a pension fund, maybe for teachers or firefighters. They will lose some of their retirement to fund this idea, 'cause their loans will have to be rewritten. How much should people give up of their retirement so other people can keep overpriced homes? Otherwise you still have the same overpriced house after 5 years, and it crashes then.

And when the loan values go down on these homes it is going to take the values down around it. And that is going to cost other people their homes.

The last chart I saw showed about 4-5 trillion dollars in extra debt on the housing market, over and above the actual value of the market. That's the price tag for fixing this. And no one seems willing to go out on the hook for such sums. Would it be worth taking social security away from some people to do this? Because with the current political climate that is a distinct possibility. That money would have to be made up somewhere - with far less in taxes being paid in, where does that come from? If you do this while the larger economy is spinning apart, it will just add more damage.

Foreclosure may not be a happy thing, but it might be the best thing. They move into an apartment. Then the home prices drop to the less-inflated level they should be at, and they can be repurchased a few years from now when some of the unemployed people have died off because they couldn't get their social security in time.