Here Comes Trouble: Stories from My Life

"Outstanding…Moore Triumphs! Publishers Weekly

Mike & Friends Blog

Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

June 27th, 2011 10:16 PM

Right to Rent: Will the Obama Administration Finally Fix Housing?

The concept of "right to rent" has been floating around Washington for almost four years. Under this proposal , foreclosed homeowners would be allowed to remain in their house as renters paying the market rent, for a substantial period of time (e.g. five years) following a foreclosure. While several bills have been introduced in Congress, President Obama may now have a new opportunity to take the lead on this issue.

The overwhelming majority of mortgages that have been issued since the financial meltdown in September of 2008 have been bought by Fannie Mae and Freddie Mac or insured by the Federal Housing Authority. This has led to an interesting, but predictable, outcome. The most recent data indicate that more than half of the new foreclosures are on houses where Fannie and Freddie either hold the mortgage or have insured the mortgage backed security in which it sits.

Rather than being a problem for banks to deal with, the problem of foreclosures is now primarily a government problem, since the Federal government now owns and controls Fannie and Freddie. This means that President Obama no longer has to beg the banks to allow people to stay in their homes. He can do it himself. And, he can show the banks how to do it right.

The main objection the banks continually raised when they were urged to make modifications rather than foreclose, was the one of moral hazard. If homeowners know that they can get both a lower interest rate and a big principle write-down by missing a few mortgage payments and pleading poverty, then you are giving them an enormous incentive to go this route. Millions of homeowners who are able to pay their mortgage will instead opt for modifications.

The banks did have a point on the policy side. While some of the mortgage debt was held by banks, mortgage-backed securities are held by a wide range of investors including pension funds, mutual funds with 401(k) investments, and university endowments. It's not obviously good to make these investors take a hit. And even with the banks, if their losses lead to more bailouts it's the taxpayers who take the hit.

And not all homeowners are struggling moderate-income families who got deceptive loans. Most homeowners are middle-income families who got prime loans.

The politics look even worse. The Tea Party got started by a televised rant over paying "your neighbor's mortgage." It proved easy for the right to exploit this image of a gold-plated government handout, even though the actual Obama program was nothing of the sort.

It is in this context that right to rent is largely bullet proof. It is no great handout. People will lose ownership of their home. But it will provide them with housing security for a substantial period of time. And it does it in a way that requires no taxpayer money and no new bureaucracy.

As part of the foreclosure process, homeowners would be offered the opportunity to stay in their home paying the market rent, as determined by an independent appraiser. This is the same sort of appraisal process that banks use when considering a mortgage application. It can also be structured to ensure that millionaires are not gaming the system. The limits can be set so that the option only extends to homes that cost less than the median price or less than 1.5 times the median price in a metropolitan area.

This won't help everyone. Those who have lost their jobs and have no regular income or savings will find even the market rent unaffordable. However in many former bubble markets the market rent is less than half the mortgage that people who bought near the peak of the bubble would be paying. The switch to renting would make the home affordable and free up money to be spent on other items, boosting the economy. Of course the whole neighborhood gains if the house remains occupied rather than being boarded up as a foreclosure.

It would take a law passed by Congress to create a right to rent for the people losing their home to foreclosure. However, President Obama could unilaterally act to require Fannie and Freddie to go this route.

Fannie and Freddie already have very limited programs along the right to rent model in place, but they are cumbersome in their mechanics and have only been offered to a small number of homeowners. President Obama could tell these government-owned mortgage giants to start offering a rental option to all their foreclosed homeowners.

The government already loses more than 50 percent of the loan value on an average foreclosure, so there is very little potential loss by allowing the rental option. And, if keeps people in their homes and shores up neighborhoods, there will be a very large gain. And, it will provide a good model for the banks.

You must log in to comment.

You must be logged in to leave a comment. Log in | Register

Time to put the cuffs on Chris Christie -- not for the bridge scandal, but for this: Chris Christie's $300m pension proposal broke state anti-corruption...

Apr 18th
7:31 PM
Read More

George W. Bush Debuts New Paintings Of Dogs, Friends, Ghost Of Iraqi Child That Follows Him... www.theonion.com President Bush has a new hobby -- painting! --...

Apr 17th
7:28 PM
Read More

Big new story from David Sirota and Pando on top Christie adviser and appearance of corruption at New Jersey's pension fund: REVEALED: Gov....

Apr 17th
12:41 PM
Read More

FBI Uncovers Al-Qaeda Plot To Just Sit Back And Enjoy Collapse Of United States www.theonion.com WASHINGTON—The FBI announced today that it has uncovered a...

Apr 15th
3:28 PM
Read More

Revealed: Rahm Emanuel's top donor bought stock in Marriott just before it was awarded huge contract pando.com As schools are closed and pensions cut,...

Apr 9th
2:00 PM
Read More

I'll be at First Time Fest today in New York City at the screening of my first film, Roger & Me. Loews Village 7 at 12:30 pm. Come see it on the big...

Apr 5th
9:48 AM
Read More

Revealed: Rahm Emanuel cuts public pensions, diverts money to benefit campaign donors pando.com If you've read the financial news out of Chicago the last...

Apr 4th
2:19 PM
Read More

Please take a moment today to think of Casey Austin Sheehan, son of Cindy and Patrick, who was murdered by U.S. foreign policy in Sadr City, Baghdad ten years...

Apr 4th
2:00 PM
Read More

ICYMI - I've joined this "thunderclap" to support the Connecticut legislators who voted yes on last year's Act Concerning Gun Violence...

Apr 3rd
7:38 PM
Read More

I've joined this "thunderclap" to support the Connecticut legislators who voted yes on last year's Act Concerning Gun Violence Prevention...

Apr 2nd
8:27 PM
Read More

I am opposed to the death penalty, but to every rule there is usually an exception, and in this case I hope the criminals at General Motors will be arrested...

Apr 1st
3:55 PM
Read More

How Long Some in the US Will Survive Under New Health Law ...by Donna Smith www.michaelmoore.com Those who must access care to live and can afford it are not...

Mar 31st
10:13 PM
Read More

Last night, The Good Wife on the East Coast started 40 minutes late due to the overrun of the NCAA basketball game. If you had your DVR set for the show, you...

Mar 24th
5:41 PM
Read More

Watching films today, looking for the ones I'm going to pick for my film festival this summer. I (and a whole bunch of others!) have this thing we put on...

Mar 23rd
4:48 PM
Read More

When the U.S. Health Care System Keeps Killing, Who Cares Enough to Fight? ...by Donna Smith www.michaelmoore.com We have largely forgotten that people are at...

Mar 21st
5:56 PM
Read More

Tell the White House not to give up on Dr. Vivek Murthy's nomination as Surgeon General despite the ferocious opposition from the NRA: Don't give...

Mar 21st
5:38 PM
Read More

This criminal would never see a jail cell, nor would his cronies. In fact, they'd later be rewarded with re-election: Presidential Address on War with...

Mar 19th
9:40 PM
Read More

The crime of the century -- our invasion & slaughter in Iraq -- started 11 years ago tonite in this 7pm (ET) hour, March 19th, 2003: CNN Coverage of...

Mar 19th
9:08 PM
Read More

Washington’s Back-to-the-Future Military Policies in Africa ...by Nick Turse www.michaelmoore.com Nick Turse is an award-winning journalist, historian,...

Mar 17th
4:59 PM
Read More

"I think democracy is the most revolutionary thing in the world." -- Tony Benn, 1925-2014 Tony Benn in 'Sicko'

Mar 14th
10:07 AM
Read More

RIP Tony Benn, one of the UK's greatest leaders: Tony Benn, veteran Labour politician, dies aged 88 www.theguardian.com Former cabinet minister died at...

Mar 14th
9:53 AM
Read More

Please read this important story from K. Ford K.: Am I the Face of the New American Middle Class? www.huffingtonpost.com I began to feel I had slipped so low...

Mar 13th
2:24 PM
Read More

Yesterday Dianne Feinstein revealed that the CIA has been spying on the Senate Intelligence Committee. This is all about the report the committee has produced...

Mar 12th
6:48 PM
Read More

Health Care for All Colorado has brought Mercy Killers, a show written and performed by Michael Milligan about our murderous for-profit healthcare system, to...

Mar 10th
1:08 PM
Read More

Health Care Dramas that Sting and Why We Have to Watch ...by Donna Smith www.michaelmoore.com The realities Milligan has written into the show cut deep into...

Mar 10th
1:02 PM
Read More

Did you know the Lehrer Newshour on PBS has been produced for 20 years by a company owned by conservative cable billionaire John Malone? Me neither. After...

Mar 7th
8:39 PM
Read More

Mr. Obama, if int’l law is so damn crucial . . . | RootsAction.org act.rootsaction.org The Russian intervention deserves criticism. But let’s be clear. The...

Mar 6th
1:21 PM
Read More

Enron billionaire John Arnold thinks everyone should believe him when he says we've got to cut pensions because he's so incredibly rich: John...

Mar 5th
4:20 PM
Read More

More in David Sirota's continuing series on the billionaire takeover of PBS: More PBS conflict woes as activists move to eject David Koch from board of...

Mar 3rd
12:35 PM
Read More

Subscribe to Mike's Blog RSS

Click here to suggest an article

Mike's Blog

See More Blogs

Vew the archives

View older articles