Could the Right to Rent Stop the Foreclosure Hurricane?

[Hannah Bell]

As homes are vacated or boarded up, the neighbors who are left behind watch their property values plummet. State and local budgets—already decimated—take in even lower revenues, and the result is more cuts in services and more layoffs. More unemployed people means more foreclosures, and the vicious cycle continues.

Does anybody have a real emergency plan? Something that will help our communities ride out this storm before they are rendered virtual ghost towns? Or will we keep engaging in the most hazardous moral around—allowing banks to call the shots?

The Right to Rent Act would stop this cycle immediately. The proposal was first suggested by progressive economist Dean Baker, co-director of the Center for Economic and Policy Research, and it has been endorsed by experts across the political spectrum.

Here's how the law would work: your family receives a foreclosure notice. You have twenty-five business days to go to court and exercise your right to rent the property for up to five years. The fair market rate is determined by a court-appointed, independent appraiser. To be eligible, the single family property must have been occupied for at least two years, and purchased prior to July 2, 2007, at median price for the local metropolitan area. The bill would sunset after five years.

http://www.thenation.com/article/36566/could-right-rent-stop-foreclosure-hurricane

[DJ13]

1. I think the original idea of cram downs on principle set by BK judges was better

This rent idea leaves no equity for the home buyers, where a cram down gave the home buyer the chance to regain equity if home values rose in the future.

[uncommon]

4. As someone who works in BK law, primary mortgage cram downs are a VERY bad idea.

They are ridiculously complex and very expensive for debtors. Any law that would allow a primary mortgage cramdown would ostensibly have to function like an auto loan cramdown. Auto loan cramdowns are just not feasible for the vast majority of debtors, and mortgage companies are beasts with nearly unlimited resources to fight the proposals of debtors.

[SoCalDem]

7. That's the ONLY thing that would have worked, but banks would have had to come clean

and we all know how much better they like the idea of keeping their secret debt load well-hidden.

ALL the money that banks "got" could have easily been "laundered" throughout the real estate market. All that would have been necessary was a "re-set" of mortgage rates foe EVERY home-buyer @ no more than 4.00%. Amortization tables exist..they are real..and they are easy for modern computers to access.

Once that was done, every homebuyer who wanted to participate could have had a new appraisal done by randomly selected (to avoid a cozy appraiser/lender deal), and the loan re-done to a principal no more than 5% above a current appraisal. Whatever thew DIFFERENCE was could have been issued via a voucher/coupon which would have been sent to the lender as PAYMENT. That voucher would have been redeemed by the Fed in lieu of the "bailout freebie money for nothing".

This would have spurred consumer confidence and prevented a major downturn...and it would have made banks more solvent too, because they would not have had to spend so much foreclosing on and holding almost-worthless vandalized homes that no one wanted.

One caveat would have to have been in place though. Any one trying to cash in by selling, would have to reimburse the government on a sliding scale for a period of years, unless they could prove that it was only due to a job change. After a 5 yr stint, the repayment plan would be waived.

[county worker]

10. My idea is to turn foreclosed mortgages into lease options.

That way part of the payment of rent is paid toward buying the house in the future. If the rent was $1000 per month, an additional amount say $200 is paid each month and becomes part of a down payment. A contract is signed where the renter agrees to buy the house in the future at a certain price. If that doesn't happen then the renter loses what he/she paid toward the purchase.

The lenders still get a payment, rent plus the additional amount. The person stays in the house at least until he/she buys the house or has to leave. It usually is some years in the future. I would make it 10 years hoping that the economy pics up and jobs are back and the right doesn't run the country down the toilet.

[SoCalDem]

2. In theory, that would be wonderful

but I don't see it happening in most places because if people got into a home they could not "afford", with a ninja loan. they were not really even paying an amount that approached realistic rent for the place they were living in. For instance, the place right next door to us was renovated after foreclosure/vacancy vandalism, and currently rents for $1,800.00 a month. The last "owners" could have never afforded to pay that.

That was the iniquity of those wacky loans. The ads all trumpeted the fact that you could "buy a house & pay less than renting".. This is what drew so many "unqualified" people into the market. They got in on teaser rates very similar to the 0% credit card rates that last a few months, or until you make a day-late payment, and then you get whacked with a 29% rate. Many of these would-be buyers were just fine as long as they were only having to come up with a partial payment on the INTEREST-only part, and because many were ignorant of how these things worked, they did not realize that the part they were NOT paying, was just tacked onto the "end" of their notes & they were expected to someday pay major interest on top of the unpaid early-interest that they "skipped".

[greymattermom]

3. Refinance

Why not allow a 50 year mortgage? That would lower payments, and the owner could refinance into a shorter mortgage if the market value ever improves. This would also increase the tax deduction.

[Yupster]

15. The difference between the payment on a 30 year and 50 year mortgage

would be so little it would barely be noticed.

Ever look at the principal and interest proportions of your first few payments.

It might look something like this.

Principal $ 40
Interest $ 960

So extending the loan would cut the principal amount to what? $ 20? Would that help anyone?

[stopbush]

5. Unless the rent payment was considerably less than the mortgage payment

the owner/tenant is currently paying, how would that work?

Most people get late on their mortgage because they've lost a job or have taken a hit to their cash flow due to medical situations etc. If you can't pay your $2000-a-month mortgage, how are you going to pay $2,000 a month in rent?

In addition, a renter can be evicted from a property for non-payment of rent within a month of missing a rent payment. They get a 3-day notice and can be kicked out in 30 days. A home owner can sit in their property for years, paying no mortgage or rent at all, banking as much as they can and waiting for the loan company to eventually foreclose.

The downside of going to such a scenario are vast.

The only case I can see it working is in a property that has tenants - the bank forecloses on the owner and lets the tenants stay on as renters to the bank. But that won't happen because the bank doesn't want the property on their inventory and sure as hell doesn't want to be in the position where they have to give the tenant a lease that would preclude them from selling the property if they found a buyer.

[Recursion]

6. The question is how many people could still afford to rent?

In some markets, house rentals are more expensive than mortgages, even crazy ARMs. Still, it sounds like a good idea.

[stray cat]

8. if house prices are allowed to plummet (Adjust to wages) renters can begin to buy

[peacetalksforall]

9. This is a crisis and requires crisis-ethical planning. While I suspect that

those in the know about the their own takeover plan don't want ethical crisis thinking that benefits families. They hope to acquire A GRAND COLLECTION OF HUMAN FREE HOUSES for the upcoming inflation they are planning. It's OK with them if the neighborhood values are plummeting.

[SoCalDem]

11. and their fatcat friends come to them with big ole wads of cash

to purchase "blocs" of real estate at reduced prices which they can afford to sit on until the market rises again. Would-be first time buyers get edged out on the real bargains because they cannot pay cash..and when they do get up the nerve to make an offer, it sits in limbo for months while banks try to wheel & deal to get a better offer.

[customerserviceguy]

12. It's an interesting idea

but I have doubts about how it would work in practice. If I were about to be foreclosed, and I excercised an option to rent for five years, what protection do I have that the 'independent' appraiser would not price me out of the market? Also, would I be locked in for five years? What if real estate prices continue to slide, and I could get a better deal two or three years from now for a rental?

Frankly, I do think any CPR done on the housing market only prolongs the recession. Once housing hits rock bottom, we have a chance to finally work out of this lousy economy. Propping it up artificially delays the day that we finally turn this thing around.

[slackmaster]

13. Lenders would raise interest rates and/or loan fees across the board to compensate...

...for expected loss of income from P&I payments that get converted to (presumably significantly lower) rental income.

[flvegan]

14. A simple mandatory loan interest rate

would be a bigger help. Mandatory reset to 3 or 3.5% (unless it's already below that). Very simple.