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.

The post “Right to Rent” bill is a winner appeared first on Occasional Planet.

Elizabeth Warren has been predicting the collapse of the middle class for years and unfortunately, her predictions are coming true. In this hour-long lecture, she deconstructs the myth that middle class Americans are in trouble because they are irresponsible, or spent too much at the mall. Instead, she shows in fascinating detail how flat-lining salaries, rising prices for housing and education, and the need for two cars (because it takes two incomes to cover expenses) have put many families not only in debt, but one paycheck, or one medical emergency, away from financial disaster. These economic realities combined with ruthless financial industry practices have brought working families to their knees.  According to Warren:

Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can’t make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.

There are many factors that caused this train wreck, yet the business and financial deregulation of the Reagan, Clinton and Bush years is probably central to this disaster.

Deregulation unleashed the anti-social mentality of the business elite, allowing them to engage in business practices that fueled dangerous bubbles in the tech and housing markets. They maximized profits for themselves and their stockholders and left middle class Americans struggling to stay afloat. Any sense of responsibility toward the ordinary working person was incinerated in the rush to create “innovative” financial products, such as credit swaps and derivatives. It was all a giant ponzi scheme and as long they were making vast amounts of money, they didn’t care what was happening to the rest of America. Their salaries and bonuses entered the realm of the obscene while families continued to sink under unmanageable debt. Throwing gas on the fire, “savvy” businessmen created tricks and traps for the consumer, shipped middle class jobs overseas, hid profits in the Cayman Islands, or passed on toxic environmental pollution to the taxpayer.

Defenders of deregulation believe that an anti-social, ruthless business class has to be tolerated because it creates wealth for the rest of us. This is the old “rising yachts float all boats” mythology propagated by yacht owners. In reality, deregulation produces the wreckage of the middle class we are experiencing today. Thanks to our deregulated “free market system,” America is on its way to becoming a second rate country.  A yawning gap between the very rich and the newly minted poor, who once considered themselves solidly in the ranks of the middle class, will continue to grow.  If we do not reform our electoral process, our government and our economy so that it supports a viable, solid and secure middle class, the United States will continue to deteriorate.

In order to strengthen our middle class, and our country, we need an educational system that links training to careers, a single-payer health care system that cares for all, a regulated market economy that encourages innovation and entrepreneurship, and socially responsible business practices.

Photo: courtesy of Susan Walsh/Associated Press

The post Elizabeth Warren on the coming collapse of the middle class appeared first on Occasional Planet.