April 10, 2008
http://www.cepr.net/index.php/testimony-of-dean-baker-april-08/
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The Own-to-Rent Alternative – Providing Housing Security to Homeowners
A much simpler route, that could provide security to homeowners even in the most inflated markets, is to temporarily change the rules on foreclosure to allow homeowners the option to remain in their homes as renters paying the fair market rent. Under this proposal, a homeowner facing foreclosure could tell the judge, or court officer handling the foreclosure, that they would like to stay in their house as a renter. The court would have an appraisal conducted to determine the market rent. The homeowner would then have the option to stay in the house as a renter, paying the market rent, for a substantial period (e.g., 10 years).
This policy would ensure that the homeowner is not left homeless. It also would keep the house occupied, and prevent the deterioration that typically afflicts the house and the neighborhood following a foreclosure. The policy could be carefully targeted both in time (e.g., it would only apply to mortgages issued prior to a certain date) and by home price (e.g., it would only apply to homes that sold for less than the median price in an area).
While providing a rental option, the “own-to-rent” plan is actually likely to lead to a situation in which many homeowners are able to stay in their homes as owners. Since most banks will not want to become landlords, this policy would provide lenders with a real incentive to negotiate terms that allow homeowners to stay in their homes as owners. In addition, it would require no tax dollars and no new bureaucracy.
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