Federal officials are weighing a plan to let borrowers who have fallen behind on mortgage payments avoid eviction by renting their home instead.
One proposal is for delinquent homeowners to surrender ownership of their homes but continue to live on the property for several years.
Officials have been frustrated as red tape and rising interest rates have slowed a housing rescue plan announced in February that was meant to refinance the mortgages of 5 million borrowers and lower monthly payments for 4 million more.
An administration official said the Treasury Department is mulling new ways to save jobless homeowners from foreclosure as it continues to expand its mortgage aid.
The official said that it was reasonable for policy-makers to consider terms for loan forbearance — letting borrowers delay, defer or skip payments — and that they should be in keeping with other aid for the unemployed.
Two years ago, a liberal economist floated the idea that struggling homeowners could become long-term renters. Dean Baker, of the Center for Economic Policy Research in Washington, now says his idea still has merit and overcomes the key moral hazards of helping troubled homeowners.
Under Baker’s plan, which he has discussed with White House officials, a bankruptcy judge would help determine a fair rent for the property. Banks would be able to sell the occupied homes, but the renter’s lease would remain in effect.
“Borrowers would lose their stake in the home so it is hard to say that they’ve gotten a windfall,” he said.
Officials are mulling several ideas on how to swap a homeowner’s loan for a rental lease without disrupting mortgage markets.
The government could pay mortgage-service companies cash to take part in the program — or encourage lenders to sell the homes to a third party that would write rental agreements — under two scenarios being considered.
(Source: NY Post)
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That works fine with people who bought houses they could afford, and lost their jobs, and will hopefully get their jobs again – EXCEPT how will they pay the rent (not a problem for those who bought low income housing, but most of the subprimes were not poor people buying in slums but middle class people buying houses they couldn’t afford to begin with). It’s also a windfall for the banks who made speculative mortgages. If the government ends up guaranteeing the rent (sort of “Section 8” for the middle and upper classes), it would be a great deal for banks who can put off selling the houses in the current market.