(cross posted from Working Life and Daily Kos)
The scam is going to get worse in the housing market. I mean the scam that will let the predators and hucksters, who lured people into bad deals, off the hook, either via Congressional bailouts or actions by the Federal Reserve. And the outcry has to build now so that we don’t let, once again (remember the savings and loan scam), the speculators skate, leaving hundreds of thousands of people to lose their homes. Here is one plan to consider to guarantee people do not lose their homes.
My colleague Dean Baker, the co-director of the Center for Economic and Policy Research, offers this idea:
The Subprime Borrower Protection Plan
This proposal ensures that subprime borrowers will not be thrown out of their home because they cannot meet the terms of a predatory mortgage. The plan:
1. Gives homeowners facing foreclosure the option of renting their home for as long as they want at the fair market rate. This rate is determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage.
2. The proposal requires no taxpayer dollars or new bureaucracies. It would be administered by a judge in the same way that foreclosures are already overseen by judges. It simply changes the rules under which foreclosures can be put into effect.
3. The proposal does not bail out in any way lenders who made predatory mortgages or made risky gambles in the secondary market.
4. There are no windfalls for homeowners. They will have the right to stay in their house, but will no longer own the home. This means that there is no real incentive to abuse the program. The plan would be capped at the value of the median house price in a metropolitan area, so it will not benefit high income homebuyers.
5. Rents will be adjusted in later years by the Labor Department’s consumer price index for rents in the area. If either the owner or renter believes that their rent is unfair, they can arrange, at their own expense, to have the court make a second appraisal.
6. After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely.
Now, why should you trust Baker? Well, he was one of the few voices who warned early on about the housing bubble—a warning that the media and the "experts" chose to regularly ignore. Had Baker been listened to (as opposed to, for example, the cheerleaders from the National Association of Realtors whose chief "economist" published a widely quoted paper "Why The Real Estate Boom Will not Bust and How you Can Profit From It"), we might not face the pickle that so many people find themselves in.
The point is that this is a moment where a reckoning must occur—for the speculators, big business advocates, hedge funds and for the so-called experts. Baker’s proposal is a clear path to make sure that people do not find themselves homeless
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Ok, you lost me right
Ok, you lost me right here:
"6. After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely."
Why would anyone buy a home, even at a foreclosure price, if they were bound to accept a tenant indefinetly? That makes no sense at all. What if the tenant, who no longer has a stake in the house trashes it? You can't evict because of that clause. What if, at some point, you need the house to live in? You can't evict, even if it means you have to go out and rent something else. Sorry, this will simply not work.
I think the way to go is a
I think the way to go is a rent-to-own deal, where the rent can count as ongoing mortgage payment if the former owner recovers the ability to purchase the house.
Re. the assumption that tenants will trash a house is, I think, insulting to tenants. Whoever takes over a mortgage takes on an obligation to be a good landlord. Tenants of good landlords don't tend to destroy the property (of course, there are exceptions to every rule).
The people were told over and over again that the credit bubble was sustainable. they were lied to. They should not have to take the hit alone.
__________________________I see a couple of problems
I see a couple of problems with this. Monthly mortgage payments are generally lower than comparable market rent for the same home. If they can't make a mortgage payment, they are not likely to be able to pay market rent on the same home. It is more likely that the homeowner would have to find a cheaper place to live. If the homowner is in default due to prolonged unemployment, they may not be able to pay for anything. Also, as mentioned in an earlier comment, why would you buy a house even in foreclosure if you were committed by contract to keeping an existing tenant, especially one who lost the home to begin with.
I do agree with the initial premise however that we should be using tax dollars to help homeowners keep their homes rather than bailing out unscrupulous lenders. I just think there are probably better ways to do that. The simplist thing it seems would be to extend the loan for 12 to 24 months allowing the homeowner to get on their feet again. The lender makes more money in interest and the homeowner keeps their home. It would be a win win for everyone. The real shame in all of this is that buyers who don't put 20% down are usually required to carry insurance in the event they default on the loan. They can't use this insurance that they paid for to keep their homes and even though the insurance pays the mortgage co. for their loss the homeowner still has their credit ruined. This is just one more example of how special interests control our government. The consumer pays the insurance premium while the mortgage company reaps all of the benfit. Only in America!!!!
__________________________Work and struggle and never accept an evil that you can change -- Andre Gide