Abandoning and bulldozing property costs, too.  Just thought you'd be interested in what's going on in Rhode Island, under local initiatives, by a variety of groups.  Not only do these activities recycle abandoned buildings,  they also serve to train and mentor would-be contractors and all of this seems like win-win to me. I suspect there are similar activities all over. 

aMike (who moderately went)

Due to Wall street's carving up of CDOs into complex financial entities it has been very difficult to negotiate deals like this with mortgagees - a foreclosure process will begin at the behest of a servicing company, but the servicing company will not have the authority to stop the foreclosure process. And the clerks you can reach at the mortgagee (if you can figure out who the real mortgagee is)will not have the ability to work out a deal. You get a short sale involving a 10% loss to the mortgagee being spurned in order for the property to become a vacant, abandoned REO in a sinking market. A sad waste, but you can't make a bank look out for its own interests when its officers are in denial.

Maybe if some sort of single-family-home RTC gets set up as receiver for a lot of failed banks and investment funds, a standard policy for establishing fair rents and negotiating short sales, or even just resetting mortgages at current mortgage rates and amounts, could be done.

Unfortunately, the securitization of the market has made mortgagees and mortgagors less secure.

"If a homeowner chose to go this route, the judge in the foreclosure proceeding would appoint an independent appraiser to determine the fair market rent for the house."

Since when will a mortgage holder allow itself to be at the mercy of "an independent appraiser"?

You don't have to be a blind conservative not to see it, just an ignorant one to deny it.

That's the same thing I was wondering. The landlord/renter relationship can be quite complicated, and is governed by all kinds of separate laws and expectations. Who is responsible for maintainence, for example? If a former owner now renting allowed the house to go to seed, who would be financially responsible for the depreciation? I have a hard time imagining mortgage companies would want to wade into this morass. Perhaps a separate subindustry would have to emerge to take charge of management duties on these properties.

So the acute and proper concern here is in not putting people out of their homes.

your "acute concern" is only a materialistic attachment, i.e. based on sentimentality.

since you're right that "a home is where the heart is," people just have to detach their dignities and egos from the situation and move on.

To boldly go...

Not only that but those landlords interested in buying the foreclosed properties would be buying rent controlled properties since any rent changes would not be agreed upon between landlord and renter but would be set by some “independent” arbiter, further reducing the market value of the properties.

This is an interesting idea, but I'm not sure how you implement it. Implementation would be a morass of local, state, and federal law. And in any case, I'm not sure that the incentive is there. Mortgage companies are not likely to want to become rental property managers. So, they would likely sell the house, and then the question becomes who has the capital to buy all these properties, and if some entity does, how willing they will be to keep the leases running and for how long. In any case, being a renter is significantly different from being a home owner, and that might put some people off.

I live in Phoenix. Watching the housing market here, there is no shortage of rental homes and no shortage of people in trouble with their mortgages. Leasing these homes back to the foreclosed upon will solve nothing. It's not like they'll end up truly homeless; after all, if they can afford to rent back their home at market rates, they can afford to rent someone else's home. Furthermore, handing over the task of assigning the rental rate to an appraiser (I am a commercial appraiser) sounds like a good idea until you realize that the homeowner is likely to get a lower rental rate in a comparable home if they have the power to negotiate.

Also, a bank is not in business to own property. Their first move is to sell. I imagine a new sub-industry will spring up of property management companies/investors snatching up these homes with a lease built right in and becoming suburban slum lords (like most property managers already are). The homes will fall into disrepair just like all other rental homes.

And rent-to-own schemes are heavily tilted toward the seller.

This whole idea sounds nice in theory, but it's unnecessary and unlikely to work to anyone's real benefit. The housing market is about as close to a perfect market as we can find. It will right itself just like it always has. The question is how long this will take. And unfortunately, there are many people who are in a bad way, but nobody twisted their arms to get them there. Caveat emptor.

It would seem to me that anybody who owns a house and rents it out will, in a fair market and assuming the home is average for its neighborhood, want to rent the house for at least a small profit over the cost of his mortgage and taxes and upkeep. Would this not imply that the rent would cost more than the mortgage on the same house? It seems your assumption of ussing a fair market rent may need more exploration.

dc

Re: a foreclosure process will begin at the behest of a servicing company, but the servicing company will not have the authority to stop the foreclosure process.

I keep seeing this claim and it's not usually true. Servicers normally have pretty wide latitude in these matters. I work in the industry and I have seen mortgages that were months behind on payments reinstated from foreclosures. The trouble is that in many cases there's no deal possible: the payments are too far out of reach for the borrower and there's no reasonable compromise. These of course are loans that should never have been made in the first place.

Re: First thing is declare a moratorium on foreclosures nationwide.

Was that even done during the Great Depression? And think of the unintended consequencse of such a move: how many people will simply quit paying their mortgages knowing they can't be foreclosed on. Moreover a great many of these defaulted loans were not made to home owners, but to investors looking to flip properties in get-rich-quick schemes. Why should they be given protection when they probably lied about their income in the first place? One area where some protection is needed is for current renters in foreclosed property. Currently they have no rights at all. I would suggest that when a property is foreclosed, renters should be allowed to finish out the term of their lease, paying the forecloser rent instead of the original landlord.

A lot of people seem to be hung up on the problem of Fair Market Rent (FMR). Why not go with the FMRs already established by HUD?

They exist for every MSA in the country and are the limits for the Section 8 rental program.

If you want to say that those rents are too low for the McMansions some of these loans are on, they maybe an independent appraiser may be in order, but I think it would be reasonable to cap the own-to-rent FMR at 20% (probably 10% would be better) above HUD's FMRs.

There was a story in a Toronto paper (sorry I read the print edition) about one such person who used the $ they borrowed to 'pay debt'. It was a 77 year old widow who had medical debts (prescriptions, etc.), but couldn't quite handle the payments when interest rates went up. She still had a lot of equity in the house. She 'doesn't own it', true enough, but only true in a predatory, dog-eat-dog society. The rental option makes a lot of sense in her case.

global citizen

at least now, the prevailing idea is that renting is better than owning. if rents are lower than owning, then what does that do to neighborhod comps?

To boldly go...

The proposal doesn't give mortgage holders the option of whether they want to be landlords. The homeowners facing foreclosure have the right to be renters, if the mortgage owners don't like that, that is too bad for them.

Few people with positive equity allow their home to be foreclosed. If they have positive equity, they can sell the place, pay off the mortgage, and still have money to pocket. Therefore, most homeowners having trouble making payments, but with positive equity would not be facing foreclosure.

your "acute concern" is only a materialistic attachment, i.e. based on sentimentality.

Some of us (i.e.--me) question the logic of this.  First, only is the kind of dismissive word that keeps a person from having to look at an argument and answer it--rather like merely that way.  Love is only a materialistic attachment, based on hormonal responses and sniffing pherenomes..i.e. based on sentimentality.  (No, I don't believe that any more than I believe that attachment to one's home is only a materialistic attachment).

The attachment is based on the emotional nurturing a sense of place gives...I'm remembering your lauding your grandmother for holding on to a house and paying a bundle of taxes to do it.  I laud her too, for that. 

Homes are places embedded in networks of human relationships. . . losing one's home means losing one's neighbors, one's local social organizations, and one's affection for community.  It also deprives that neighborhood (Hi, Mr. Rogers...hope you like the neighborhood in which you now are), of the contributions a person makes to it.  This is serious stuff, as works like Bowling Alone and That Great Good Place amply demonstrate.  If this is sentimentality, make the most of it.

aMike

If you can show that a mortgage company committed fraud in some way then let’s punish them in some way just like a polluting company would be.

Let’s not do a blanket conversion of owner occupied housing to rental property with uninterested financial institutions forced to maintain and manage that housing just because we really hate mortgage companies and we really love people who can’t pay their mortgages.

Adults use their brains to consider the consequences of their actions and do not simply lash out at those they hate, unlike the amikes of the world.

I am an adult, and I do use my brain thank you very much.  I stand by what I said, noting in passing that I didn't need to cast a slur on either your intelligence or your integrity to say it.  I might have cast a small slur on the nature of your heart, indirectly.  I think I'll let it stand.

Mortgage companies committing fraud?  Of course they don't.

Neither did significant elements of the Savings and Loan Industry in the 1980s.  Of course they didn't. 

If we were to treat these cases precisely parallel with individuals, the appropriate thing to do would be to abrogate their charters.  They're creatures of the state in the first instance.

aMike

No,price to rent ratios soared in the last decade, that is how it was posisble to recognize the run-up in prices as a bubble. So, the fair market rent would be far below the mortgage payments these people face, especially since they are looking at subprime rates that are often more than 2 percnetage points higher than prime mortgage rates.

1. The idea is not to help any particular mortgage but just to prevent a run on neighborhood housing stock where everyone attempts to sell or foreclose at once. In that regard it doesn't really matter if Bank A has never yet foreclosed on a single house....if the neighborhood has already suffered 20 foreclosures it's adding more wood to the fire.

I think as a temporary measure it is actually more fair to the individual case. Like a bank run, those participating in it would like to stop but they don't for fear that the other guy will get his money out first and leave nothing left on the table for them. Drastically falling property values actually cause more foreclosures and lead to more harm to mortgage holders (because they cannot recoup their investment and have to write off balances).

2. Individual counties/states could do this or it could be done on the national scale. Any county that wants to 'opt out' could simply take the revenue generated from the 'fees' and refund them back to the banks doing the foreclosures. Perhaps some counties would want to do this in the hope that banks would offer mortgages for better rates. I would have the fee revenue go to the local towns to offset property taxes...that would hopefully act as a slight push up in property values to counter the downward push of foreclosures.

A reason I would do it on a national scale is that it would be easier to end the problem and I would want it to end. A macro policy really should be implemented on a macro level. I would want it to be less like unemployment insurance or bank deposit insurance and more like FDR's 'bank holiday'. Another issue is that on the local scale such a scheme might be unconstitutional....I'm not sure about this but I suspect one could argue that it might represent a state disrupting the enforcement of contracts. Put this in on the national scale with an expiration date of, say, two years, and it will be very hard to renew unless a huge portion of country just fell in love with it.

Robert Brown

I don’t know why a decline on housing prices in an area should result in more foreclosures. Why would someone who could afford to make his mortgage payments default on his loan simply because his house had declined in value? It seems that the mortgage company would be more likely to foreclose on properties with a high market value since they could easily be sold to pay off the mortgage.

There are many mortgages that were written as 2/28. That meant fixed payments for two years, then variable for 28. Why would someone do that? Take someone with medium to poor credit. They make two years of managable fixed payments then after building credit (and possibly some equity from rising home prices), they can now refinance for a new fixed rate before the killing variable payments kick in.

Now what happens if home prices fall? Even if everything was perfect the falling prices mean less equity, maybe even negative equity. No mortgage company wants to take on a loan like that now. Even if they did, the market right now is making credit hard even for people with excellent credit. So yes falling home prices means more foreclosures even for those that were fine.

Now take a step back, consider someone with a fixed rate mortgage, making payments just fine then he loses a job. Before he might be able to miss a few payments and refinance bringing him current again. But if home prices collapse then this fellows equity is taking a hit making it all the harder. He will be stuck with his current company who are likely to be unhappy about him being behind....when they consider prices are falling they may say to themselves we better get this house sold now rather than risk that six months from now the write off we are going to have to take will be $50,000 rather than $30,000.

You are right in that if everything is going perfect and the guy is making his payments perfectly the bank cannot foreclose just because prices go down.

Seems like they would lose their closing costs under Baker’s plan as well since they will still lose ownership of the house. Depending on the details of the legislation, it seems like it would be reasonable for the mortgage holder to require a security deposit after the owner becomes a renter.

Unless Baker really expects the independent appraisers to come up with below market rates for rent, it seems the only advantage to his plan is avoiding the hassle of moving for the people who lose their houses.

The other problem is that current homeowners may see a lot less sting in foreclosure...especially the ones who are facing big increases in their payments due to '2/28' loans and the like. Some who could make the payments might be tempted to let the scaled back foreclosure go down and enjoy paying rent...perhaps even later on adding insult to injury by 'buying' the house again after home prices start collapsing.

This leads us to the problem at hand today which is not so much an army of homeless people created by foreclosures in the 500K+ housing market but lenders not wanting to make loans today. Why would they start making loans again if you introduce a program that essentially makes it all the easier for people to get away with nor making their mortgage payments?

I know my program has the same weakness but at least it is targetted towards areas that are in danger of seeing a price collapse which is something mortgage holders do not want.

But what would be your reasoning for including people in the situation I describe in this program? They took a risk but by foreclosure lose very little. Granted, someone like that is not the majority having problems. But why is there a need for government to step in there? Please understand that I am asking this not to negative or to express traditional conservative viewpoint but I am thinking you see other benefits I am missing--like saving the neighborhood or something. Cause without another reason to help someone like that, the program would be attacked by the "not fair, why does that guy get government advantage when he doesn't need it?" routine. A lot of renters have to move in their lifetimes, it's not something that's like a great tragedy and we don't normally give assistance with that. What's the society's benefit to let them rent it at a enforced rate for a long time if they aren't out much more than IF they had been renting in the first place? It would be introducing all the known problems of rent control. For what reason if they haven't suffered much of a loss? I'd rather see help to something like re-colonizers of New Orleans unless there's some benefit I'm missing.

Yeah, the idea sounds good at first glance, but it would seem to me also that there would need to be lots of additional protections built in, or else we'd just move the housing meltdown problem over into the rental market without really solving it. I have several questions.

For instance, do mortgage lenders really want to get into the landlord business? Somehow I have visions of the lenders selling the rental contracts to the very same speculators who drove up housing prices, with the same effect ensuing on the rental market. Will a program such as this have the tendency to drive up rents across the board?

Also, it seems to me that if a family is going into foreclosure, the protection mentioned in the proposal to allow a second appraisal of fair market rent, at the potential renter's expense, isn't really very effective. If the family is facing foreclosure any, would it be very likely that they have the extra funds available to pay for the second appraisal? But there's another possibility: use the HUD fair market rent (FMR) values, which are averages based on annual surveys of rental properties in each metropolitan area. These FMRs, though, are likely to be much lower than those derived by an individual appraisal. Perhaps there could be some formula set up, based on the HUD FMRs, but adjusted for the particular characteristics of the individual property. I think you're right about the appraisal issue, but it may be difficult to design a system to get around it. It's tricky.

The other thing that I don't understand about the proposal is what happens to the money that's lost. In other words, if the amount of rent is lower than the mortgage, who pays the difference, or does the lender just lose that amount? Since taxes on the property would presumably revert to the lender as well, the lenders appear to be taking quite a hit here. I suspect that the lenders, before going along with this proposal will ultimately place a lot of pressure on the government to make up the difference, so ultimately, the taxpayer is going to be the one paying for the bursting of the housing bubble. On the other hand, that's pretty much a given anyway, so the Own to Rent program seems worth considering, as long as there's lots of thinking done and adjustments made to avoid negative unforseen consequences.

"If the only tool you have is a hammer, you tend to see every problem as a nail." ~~ Abraham Maslow