Why don't mortgage lenders just rent out the foreclosed properties to the former owners? Rather than throwing people out of their homes, boarding them up and letting them just sit there as a blight on the neighborhood, why not let the former owner stay and pay rent? The amount of rent would be based on their income and general ability to pay. Maybe even give them right to buy the home back before the property is sold to someone else once the market returns. It would give the lenders some revenue, keep the house open and free from vandalism, reduce neighborhood blight, preserve area property values, help the former owner who may have lost his job etc., and provide great PR to lenders ( God knows they could use it).
What is the downside? There must be an answer , so let me hear it.
After foreclosure the lenders are already legally responsible for the property and are managing those foreclosed properties, to some degree. Why not collect some revenue and do some good at the same time?
I'd like to know why not.
Eric
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ReplyDeleteEric there are as many reasons as there are borrowers. Because it takes so much time to foreclose, borrowers often rather live there for 2 years paying nothing. Banks need to sell or mark down REO property and are not in the RE business by their charters. Many borrowers have 2 and 3 liens on their homes not just a first mortgage. I tried something equally innovative, I tried with limited success to find jobs for unemployed homeowners. One guy we found a job for still did not pay us, and others that got jobs pretended they were still unemployed.Most mortgages are in pools anyway and how can you rent those homes. Some people have good will, but they are up to their eyeballs in credit and just go bankrupt at the rate of 1 to 2 percent of the entire adult population annually. It is all nuts out there, thankfully we only have a handfull of foreclosures. Want a nice condo on the south side, a pied a'terre? Ciao. Marc
ReplyDeleteProfessor James Galbraith of the University of Texas says there are things the government can do to help the housing market work through its problems, but this particular measure falls far short of them. Professor Galbraith advocates giving homeowners the right to rent properties they formerly owned, which would force the banks to take losses on the original mortgages and then become landlords.
ReplyDeleteAs you know I quite agree.
ReplyDeleteHowever I don't fully understand his point about the banks then being forced to take losses on original loans. That's exactly what happens when they foreclose, whether they rent it out or not. In fact I'm sure they have taken loan loss reserve for quite some time on defaulted loans.
In fact, it should be better if they rented it rather than left them vacate, since the rent would mitigate the loss somewhat. That's an additional reason why I have long agreed with you on this.
What are we missing?
Also I'm sure you have seen today that Obama is moving toward my refinancing idea for GSE owned loans. I assume that is the "particular measure" referred to below.
You may be aware also that the 50 attorney's generals lawsuit against the major banks may also result in the banks agreeing to refinance underwater mortgage. That would pick up the non-GSE owned mortgages actually owned by banks. However there apparently are many loans not owned by banks or the GSE, but by a wide and disparate group of investors.
Still it would go even further to help those who are current on their mortgages.
The rental idea helps those in foreclosure as far as living in their homes, with some hope of reclaiming their homes if their economic circumstances improve. The banks would benefit from generating income and keeping up the property. The community would be benefited by not having boarded up dangerous eyesores and deteriorating neighborhoods.
Again , what is the argument against?
Eric