Jump to content
House Price Crash Forum
murpaul

How To Solve The Housing Crisis

Recommended Posts

http://www.guardian.co.uk/commentisfree/ci...res-rent-to-own

Winston Churchill supposedly said: "You can always count on the Americans to do the right thing, after they have tried everything else." This may prove to be an accurate description of the response to the foreclosure crisis that has followed the collapse of the housing bubble.

The folks in Washington have developed a series of complex mortgage modification schemes designed to keep people in their homes. George Bush put forward the first plan in the summer of 2007. It was entirely voluntary for lenders and came with no government money.

Last summer, Congress developed a package that committed up to $300bn in loan guarantees to support modification efforts. Eight months after the plan went into effect, there were fewer than 1,000 applications and only 52 completed modifications.

The most recent set of proposals came from President Barack Obama in February. This plan focused more on giving incentives to servicers, offering them $1,000 to carry out a modification and an additional $1,000 for each year that the homeowner stays in their home. This programme also appears to be having a limited effect, as foreclosure rates hit a new high in the second quarter of this year.

There is an easier route. In recognition of the extraordinary situation created by the housing bubble and its collapse, Congress could approve a temporary change to the rules governing the foreclosure process. This change would give homeowners facing foreclosure the right to stay in their homes, paying the market rent for a substantial period of time (eg seven to 10 years).

This change would have two effects. First, it would immediately give housing security to the millions of families facing foreclosure. If they like the house, the neighbourhood, the schools for their kids, they would have the option to remain there for a substantial period of time.

Also by keeping homes occupied, this rule change can help prevent the blight of foreclosures that has depressed property values in many areas. Vacant homes are often not maintained and can become havens for drug use and crime.

The other effect of a right-to-rent rule would be that it would give lenders substantially more incentive to modify a mortgage. Under the rule, the lender could still carry through with the foreclosure process and take possession of the house. The lender would also be free to resell the property, but the former homeowner would still have the option to remain as a tenant, paying the market rent for the period specified in the law.

Since a house that comes with a renter attached is much less valuable to the bank, foreclosure would be a much less attractive option. Therefore lenders would have more incentive to try to work out a modification plan that allowed the homeowner to remain in their house as an owner.

The main argument that has been raised against a right-to-rent law is that it would interfere with the sanctity of contracts by changing the terms of enforcement after the fact. While it is important to have clear law on such issues, there is precedent for such changes. During the Great Depression the government imposed a complete moratorium on foreclosures, a move that was upheld by the courts.

Perhaps an even better precedent was the bankruptcy reform act that Congress passed in 2005. This act made it far more difficult for creditors to have their debts relieved in bankruptcy. The reason that this provides a precedent for right-to-rent laws is that it was applied retroactively to debts already incurred. A person could have run up $30,000 in credit card debt under one set of bankruptcy rules only to find that they were now bound by a much stricter new set of rules. When the topic was changing the rules to benefit creditors, the sanctity of contracts was never even raised as an issue.

The foreclosure crisis is a disaster for millions of homeowners who are seeing dreams ruined and their families' lives disrupted. The efforts to develop creative mortgage modification schemes have thus far not been successful in providing much relief. Such plans are inevitably costly and time consuming.

By contrast, a right-to-rent law can instantly provide security to millions of homeowners facing foreclosure. It requires no bureaucracy and no taxpayer dollars. Perhaps the Obama administration and Congress will take such a proposal seriously now that they have tried everything else.

Share this post


Link to post
Share on other sites
http://www.guardian.co.uk/commentisfree/ci...res-rent-to-own

Winston Churchill supposedly said: "You can always count on the Americans to do the right thing, after they have tried everything else." This may prove to be an accurate description of the response to the foreclosure crisis that has followed the collapse of the housing bubble.

The folks in Washington have developed a series of complex mortgage modification schemes designed to keep people in their homes. George Bush put forward the first plan in the summer of 2007. It was entirely voluntary for lenders and came with no government money.

Last summer, Congress developed a package that committed up to $300bn in loan guarantees to support modification efforts. Eight months after the plan went into effect, there were fewer than 1,000 applications and only 52 completed modifications.

The most recent set of proposals came from President Barack Obama in February. This plan focused more on giving incentives to servicers, offering them $1,000 to carry out a modification and an additional $1,000 for each year that the homeowner stays in their home. This programme also appears to be having a limited effect, as foreclosure rates hit a new high in the second quarter of this year.

There is an easier route. In recognition of the extraordinary situation created by the housing bubble and its collapse, Congress could approve a temporary change to the rules governing the foreclosure process. This change would give homeowners facing foreclosure the right to stay in their homes, paying the market rent for a substantial period of time (eg seven to 10 years).

This change would have two effects. First, it would immediately give housing security to the millions of families facing foreclosure. If they like the house, the neighbourhood, the schools for their kids, they would have the option to remain there for a substantial period of time.

Also by keeping homes occupied, this rule change can help prevent the blight of foreclosures that has depressed property values in many areas. Vacant homes are often not maintained and can become havens for drug use and crime.

The other effect of a right-to-rent rule would be that it would give lenders substantially more incentive to modify a mortgage. Under the rule, the lender could still carry through with the foreclosure process and take possession of the house. The lender would also be free to resell the property, but the former homeowner would still have the option to remain as a tenant, paying the market rent for the period specified in the law.

Since a house that comes with a renter attached is much less valuable to the bank, foreclosure would be a much less attractive option. Therefore lenders would have more incentive to try to work out a modification plan that allowed the homeowner to remain in their house as an owner.

The main argument that has been raised against a right-to-rent law is that it would interfere with the sanctity of contracts by changing the terms of enforcement after the fact. While it is important to have clear law on such issues, there is precedent for such changes. During the Great Depression the government imposed a complete moratorium on foreclosures, a move that was upheld by the courts.

Perhaps an even better precedent was the bankruptcy reform act that Congress passed in 2005. This act made it far more difficult for creditors to have their debts relieved in bankruptcy. The reason that this provides a precedent for right-to-rent laws is that it was applied retroactively to debts already incurred. A person could have run up $30,000 in credit card debt under one set of bankruptcy rules only to find that they were now bound by a much stricter new set of rules. When the topic was changing the rules to benefit creditors, the sanctity of contracts was never even raised as an issue.

The foreclosure crisis is a disaster for millions of homeowners who are seeing dreams ruined and their families' lives disrupted. The efforts to develop creative mortgage modification schemes have thus far not been successful in providing much relief. Such plans are inevitably costly and time consuming.

By contrast, a right-to-rent law can instantly provide security to millions of homeowners facing foreclosure. It requires no bureaucracy and no taxpayer dollars. Perhaps the Obama administration and Congress will take such a proposal seriously now that they have tried everything else.

If they can't afford the mortgage payment, I doubt they can afford the rent either. A lot of foreclosures are due to losing jobs and business going tit's up, not just being a bit tight on dollars. Apart from that makes good sense to me.

Share this post


Link to post
Share on other sites
Yes, force it through. Great idea. Just don't be surprised when the average mortgage rate rises to 12% the following day.

Exactly. The authors heart is in the right place though - bless.

Share this post


Link to post
Share on other sites

Wouldn't this offend the HPC purists?

By allowing people to rent the home that would otherwise be foreclosed and would in time come on the market at a lower price. Wouldn't this intervention put a false floor under house prices?

Share this post


Link to post
Share on other sites
Apologies if its already been posted.

Problem is there's nothing in it for the banks so it wont happen.

There is a lot in it for the banks. Repossessed properties are getting stripped, even the aluminium sidings are disappearing. This makes the whole neighborhood go down in value. Remember there are streets where there is more than just one house reposedesed. Drug dealers are moving in along with other less than desirable folk. meths users and dealers are not the best advert in the street let alone the actual house your trying to sell. It is far better the original owners are left in place. There is also another hidden benefit, some buyers of repossessed properties are wanting to rent them out, what could be better for both parties. The properties will sell for more and in some cases substantially more without the vandalism.

Share this post


Link to post
Share on other sites

Right-to-rent would decimate US banks as real estate purchase and rental prices have fallen dramatically, banks would find themselves in an impossible situation. Everyone who was in negative equity would demand unreasonable changes to their mortgage or swap to right-to-rent.

Regardless of whether the mortgage was altered or the property went R2R, this would herald a whole new wave a right-downs that would anhialate the entire US banking system almost overnight. Mortgage repayments are $1200. Market rent after the debtor has bashed the place up a bit is $800. Banks have no choice but to alter loan amount/rate so that repayments are $800. Bank write loan book down by 33%. Bank needs bailout again.

Major changes in the law may trigger loan covenants or CDSs as well.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.