Thursday, December 20, 2007

Own to Rent: Not a Good Idea

Doug Wilson has an article at TechCentralStation about a proposal to allow foreclosed homeowners to remain in their homes by paying a fair market rent to their former creditors:

But, ironically, Dean Baker, an economist at the liberal Washington-based Center for Economic and Policy Research, has proposed a cheap, ingenious fix that would alter both borrowers and lenders' incentives in ways that let markets manage what the Bush Administration attempted to orchestrate in bank boardrooms. He would simply give foreclosed homeowners the right to remain in the houses by paying the fair-market rent (as determined by court-appointed appraisers) to their former creditors.

This "own-to-rent" approach would spare the most sympathetic victims of the mortgage bloodbath without giving them a free ride - along with paying rent, the reality that they had defaulted on mortgages would surely damage their credit. What's more, it would keep many foreclosed houses off the market, reducing the glut that will likely depress housing prices for years to come

There are at least two problems with this proposal:

1. Court appointed appraisors - Would these be the same appraisors who until recently were perfectly willing to value homes at prices that made no economic sense?
2. Why should banks, mortgage companies and mortgage investors be forced to become landlords?

I guess I shouldn't be surprised that Doug Wilson is identified as a consultant to the home-building industry. Maybe he has a vested interest in keeping "many foreclosed houses off the market"?

No comments: