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 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.
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DelMarVa's Premier Source for News, Opinion, Analysis, and Human Interest Contact Publisher Joe Albero at alberobutzo@wmconnect.com or 410-430-5349
4 comments:
What if everyone who filed a tax return of a certain amount received something....maybe an incentive to work instead of an incentive to default or incentive to be fired or incentive to have excessive numbers of children for whom you can't provide? My father never paid me for good grades bc he said, "im not going to reward you for doing what's expected." Today we reward people for doing less than.
Welcome, once more, to the Welfared States of America!
Once again Obama and the Dumbocrats are tinkering with the economy and free market.
% years down the road these people will still be thrown out, but Obama knows there will be a majority of Republicans in both sides of congress and in the whitehouse
A nation of renters. Now, THATS a goal EVERY president should place in front of America! His sights are are set pretty high, as you can see.
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