In April, progressive congresspersons Rep. Raúl Grijalva (D-AZ) and Marcy Kaptur (D-OH) introduced the Right-To-Rent Act of 2010, H.R. 5028. Millions of families are still facing foreclosures and Rep. Grijalva’s bill would let foreclosed families stay in their homes as renters at a fair market rate set by a judge. If banks don’t want to become landlords—and they usually don’t—they would now have a big incentive to renegotiate the terms of the mortgage that truly helps the owner.
After the taxpayer bailout of the Wall Street banks, rather than designing a program exclusively focused on homeowners, the Obama administration chose to set up a bank-friendly initiative called HAMP, the Home Affordable Modification Program—a public-private partnership where the lender doesn’t have to make any changes to the mortgage unless they determine it in their best interest to do so.
Since the program began, more than three million homeowners have become eligible for assistance. In turn, mortgage servicers have reached out to these borrowers, initiating the modification process. Roughly 760,000 homeowners have received loan modifications on a trial basis. But just 31,000 modifications have been made permanent.
That’s a success rate of just 1% for permanent loan modifications. This means that the majority of eligible homeowners are still struggling with their mortgage payments. So far the average homeowner in the program is saving more than $500 a month but, homeowners who receive permanent reductions in their monthly mortgage payments end up deeper underwater than they were before they were “helped.” Meanwhile, lenders and investors continue to foreclose on properties at a record pace.
U.S. bank repossessions increased 38% in the second quarter from the same period a year earlier for a record total of 269,952, according to Irvine, CA research firm RealtyTrac. That was also a jump of 5% from the previous quarter. If that pace continues through the year, the number of homes taken by banks is likely to top 1 million by the end of 2010.
A progressive approach to a deepening crisis
Rep. Grijalva offers a creative, common-sense solution to the foreclosure crisis that focuses first on the needs of homeowners, while also being fair to the banks. Dean Baker, co-director of the Center for Economic and Policy Research in Washington DC calls the bill “one of the most efficient and simple ways to help millions of families facing foreclosure remain in their homes.” Here’s a summary of the bill:
The Right to Rent Plan:
- Gives homeowners facing foreclosure the option of renting their home for a substantial period of time (e.g. 5 to 10 years) at the market rate. This rate would be determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage.
- Requires no taxpayer dollars or new bureaucracies. It would be administered by a judge in the same way that foreclosures are already overseen by judges. It simply would change the rules under which foreclosures can be put into effect.
- Does not bail out in any way lenders who made predatory mortgages or made risky gambles in the secondary market.
- Provides no windfalls for homeowners. They would have the right to stay in their house, but would no longer own the home. This means that there would be little incentive to abuse the program. The plan could be capped at the value of the median house price in a metropolitan area (or higher, if Congress chose), so it would not benefit high-income homeowners.
- Adjusts rents in later years according to the Labor Department’s Consumer Price Index for rents in each area. If either the owner or renter were to believe that the rent is unfair, they would be allowed to arrange, at their own expense, to have the court make a second appraisal.
- Allows the mortgage holder to resell the home after foreclosure, but binds the buyer to the commitment to accept the former homeowner as a tenant for the rest of the guaranteed period.
- Prevents the sort of blight that often afflicts neighborhoods with large numbers of foreclosures. Homes would remain occupied, and long-term renters would have the incentive to maintain the properties. This would help to sustain property values for entire neighborhoods.
The best thing about Right to Rent is that, in these troubled economic times, it gives homeowners and families security in their homes. They will be able to live there for a substantial period of time—letting their children stay in their schools, giving them time to get on their feet, and prepare for and plan their next move. It would stem the current displacement of families and stabilize neighborhoods, which would go a long way toward stabilizing the real estate market. And another thing: It would show voters that Democrats, and government, really can help.