Own To Rent

I really hope this goes through:

NEW YORK, July 14 (Reuters) - U.S. government officials are weighing a plan that would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes instead, sources familiar with the administration's thinking said on Tuesday.

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes but would continue to live in the property for several years, the sources told Reuters.

Dean Baker has been hawking own to rent policy since at least last year as a way to keep people in their homes.

This bill would immediately give families security in their home, so that if they like the home, the neighborhood, the school for their kids, they would have the option to stay in the house for a substantial period of time. This also has the great benefit for the neighborhood in that homes will remain occupied.

Perhaps more importantly, this change in foreclosure rules will give banks a real incentive to negotiate conditions under which homeowners can stay in their homes as owners. Banks do not want to become landlords. The bank will own the house after a foreclosure, but a house with a renter is worth much less to them than a house over which it has complete control.

Giving the homeowner the right to stay as a renter hugely increases their bargaining power with the bank. The result of this change in foreclosure rules is that far more homeowners are likely to remain in their homes as owners.

Seeking Alpha criticizes the proposal because of the implementation, when as Baker explains the goal is to give those facing foreclosure a stick to put themselves on a level playing field with renters. The worst option in the housing process is a situation where people are thrown out of their homes and the property lies vacant. The banks can't deal well with that, the homeowners are out on the street, and the economy takes an average hit of $250,000. Banks don't manage the property when it's vacant, that's arguably worse than them having to manage a rental property. Laws governing the rental arrangements can be drafted and made to a uniform standard.

Some have said that this would freeze the housing market and that's an issue, but that would happen with a moratorium as well. Those so focused on "clearing the market" don't want to deal with millions of Americans on the street. Easing these homeowners facing foreclosure into a rental situation that is sustainable makes a great deal of sense, and maybe we can clear out those homes over a number of years.