Posted on Friday, January 21, 2011
On Wednesday, the New York Times published an op-ed by the former mayor of Greenport, N.Y., David E. Kapell, with a powerful suggestion for helping struggling homeowners and fixing the mortgage crisis. But according to officials at Treasury and the Department of Housing and Urban Development, the idea won't be in the works any time soon, if ever.
The program proposed by Kapell, also referred to as the "Right to Rent" suggests instead of booting homeowners facing foreclosure out onto the street, they should be allowed to stay in their houses -- as renters. The program, proposed by economist Dean Baker, poses the question: If structured bankruptcy was possible for the American automobile industry and those big banks, why not American homeowners?
Kapell lays out how it would work:
The borrower would lose ownership of his home, but be allowed to remain as a tenant paying fair rent for a reasonable period after foreclosure, with the requirement that he cooperate in the foreclosure. He'd pay fair market rents as published by the federal government, ensuring a clear, national standard. If the borrower couldn't afford to pay market rent, existing federal rent-subsidy programs could be extended to help tide him over.
He concludes with a plea to the administration: "Congress has done a good job of saving big business with structured bankruptcy plans. Now it must to use the same tool to save American homeowners."
At the moment, though, it's unclear whether or not a "right-to-rent" plan has enough support in Washington.
"While we continue to review this concept, we have found several challenges that we believe would limit this type of assistance from making any significant impact in the market," David Stevens, Federal Housing Administration Commissioner, wrote in an email. "Although we are not currently pursuing this option, the Obama Administration continues to work toward reforming the housing finance system and the mortgage servicing system in a way that puts consumers first and helps keep more Americans in their homes."
The Obama administration's signature anti-foreclosure effort -- HAMP -- has been roundly regarded as a failure.
As the Huffington Post reported last October:
"Far from helping at-risk homeowners, the Home Affordable Modification Program has actually made some homeowners worse off, according to the Special Inspector General for the Troubled Asset Relief Program -- also known as the Wall Street bailout. The Treasury Department set aside $50 billion from TARP, plus another $25 billion from taxpayer-owned Fannie Mae and Freddie Mac, to give mortgage servicers thousand-dollar incentives to reduce monthly mortgage payments by modifying eligible homeowners' loans. But more people have been bounced from the program than have been helped by it."
"Treasury supports alternatives that provide a graceful exit for homeowers who have experienced a hardship and cannot continue to support their mortgage," U.S. Treasury Department spokeswoman Andrea Risotto wrote in an email, citing programs such as "the Home Affordable Foreclosure Alternatives (HAFA) Program which provides options for homeowners looking for a short sale or deed-in-lieu of foreclosure."
Risotto wouldn't say what she thought of the "right-to-rent" program in particular, noting only that while the Treasury supports helping struggling homeowners, "we need to stop short of saying we would support this in particular given that we don't have enough information one way or the other."
A senior administration official listed several key obstacles to right-to-rent: concerns about the landlord role that banks would be required to play, difficult accounting implications, and the payment gap between the mortgage payments and rent imposed through the settlement process. In short, it's unclear who would take the losses in such a program. The official also mentioned the potential moral hazard involved where borrowers might chose to get out of debt because they know they would be able to stay in their homes.
But as Kapell wrote, this last excuse is tired:
"Any effort to help homeowners by forgiving some of their loans is said to create a moral hazard, rendering it politically toxic. But without help, homeowners continue to struggle, foreclosures continue to mount and the housing industry continues to drag down the economy."
By Lila Shapiro, THE HUFFINGTON POST