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From Robo-Signers to Right to Rent

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Written by Nicole Woo   
Friday, 15 October 2010 15:46
Foreclosures -- from record high numbers to robo-signers of documents -- have been dominating the news this week. Here are a few picks from just today.  

A NY Times editorial sums up the current (alarming) state of the foreclosure crisis:

An estimated 3.5 million homes will be lost by the end of 2012, on top of 6.2 million already lost... Attorneys general in all 50 states have pledged a coordinated investigation into chaotic foreclosure practices by some of the nation’s largest banks. The Department of Justice is also looking into what happened, while some lawmakers are now calling for a nationwide moratorium on all foreclosures until the legal questions are settled. The Obama administration is insisting such a broad delay would hurt the economy.
 

CEPR co-director Dean Baker's gets into the fray on The Hill's Congress Blog, answering the big question, "Should Congress pass a national moratorium on foreclosures?"

Several of the largest lenders, including Bank of America and JP Morgan, thought they had to slam on the brakes to make sure the foreclosure process is being dealt with correctly. If they are concerned, the rest of us should be, too... 

It is hard to find a good argument against a moratorium. The claim that it would be a disaster for the housing market is utter nonsense. Real-estate experts have been talking for the last two years about the huge "shadow inventory" of foreclosed homes that banks have held off the market. If the pipeline of newly foreclosed homes were temporarily stopped, they would just sell out of this shadow inventory.

And Ezra Klein of the Washington Post, while trying to make some lemonade, highlights Dean's Right to Rent proposal:

Although the potential for chaos in the housing market and on bank balance sheets is rightly feared, there's an opportunity here, too... Here are four ideas kicking around the community of experts who follow the housing market...

Right-to-rent: Under a right-to-rent program, foreclosed homeowners would have the option of renting their home at fair-market value for five years. This means less disruption for them and fewer vacant properties blighting communities. Fannie Mae has been attempting a variant of this, but on a very small scale.

We should expand the program, particularly in areas where the housing market is extremely depressed. "It's got to be better than just throwing people out onto the street," says Dean Baker, the director of the Center for Economic and Policy Research. "The bank would be getting rent. They could sell the property, though it might have a tenant for five years. But given the situation these people are in, it's a bare minimum the government could do."
Comments (2)Add Comment
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written by Mauricio Herman, October 27, 2010 2:56
The Constitution does not guarantee the right to own your home. The Government, however, should be concerned with the provision of shelter. Just converting mortgage payments into rental payments as proposed in HR 5028 is insufficient to solve the housing crisis. There is no incentive for mortgage holders. Title of the properties on the verge of foreclosure should revert to the Banks who wrote the mortgages and they would be allowed to depreciate these assets on an accelerated schedule (20 years?) When the asset is depreciated to current market value (7 or 8 years?)a new mortgage could be written. In the meantime, banks would still have a positive cash flow (after paying Taxes and Insurance) and homeowners would see a substantial reduction in their monthly payments. Management of the rentals could be outsourced at a relatively low cost.
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