“An Antiforeclosure Plan That Works”
Posted by Matthew Brian Hersh on November 17, 2009
Dean Baker, co-director for the Washington, DC-based Center for Economic and Policy Research will present his case in the Winter 2009 issue of Shelterforce for a homeowner’s right to rent in an effort to reduce the impact of the ongoing foreclosure crisis, as well as providing a foreclosure alternative for homeowners, giving them the option to remain in their home for a substantial period of time as renters:
If a family does not expect to be able to stay in a home for at least five years, then they are likely to lose by being owners rather than renters. Those who do not have stable family or employment situations will typically be much better off renting than owning. It was irresponsible that many people in policy positions urged homeownership on families who did not expect to stay in their homes for a substantial period of time. It was especially irresponsible that they urged homeownership for these families in a context where house prices were clearly out of line with long-term trends. The bubble made it virtually certain that new homebuyers would lose money on their houses.
Baker has long argued for a rental option for homeowners near default, and some of that philosophy was incoportated into Fannie Mae’s Deed for Lease program announced earlier this month. The program allows for homeowners with Fannie Mae mortgages facing foreclosure the opportunity to rent their home at market rate for up to a year. While the move is a notable first step, Baker, and most recently the editorial page of The New York Times have argued for a longer-term approach:
To help unemployed people who cannot qualify for loan modifications, Congress and the administration should expand programs to provide rental assistance, including help for foreclosed homeowners to rent their homes at a market rate. That would at least help prevent the blight that comes with abandoned housing.
The Times piece points to other elements of the Obama administration’s foreclosure strategies, including the move to provide subsidies to lenders to modify loans nearing default, calling it “flawed from the start” with no “teeth to compel lenders to participate.” Moreoever, it states that while the aim of reducing monthly payments is admirable for borrowers whose loans had skyrocketing interest rates, the efficacy wears a bit thin with unemployment over 10 percent with more and more homeowners simply not able to make a mortgage payment, never mind a reduced payment.