Dean Baker's Simple Idea To End The Foreclosure Crisis

From economist Dean Baker:

• The Right to Rent Plan

Discussed by Baker in detail here:

• Helping homeowners or the banks? -- Obama's policy relies on the flow of money from taxpayers to banks, and unsurprisingly, it isn't working

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• From Marketwatch

Current policy has two ways of dealing with homeowners who can't pay: Foreclosure or mortgage modification. Neither of these approaches is working to stabilize the market.

Foreclosure isn't helping, because it adds to the supply of homes. It's also devastating to neighborhoods and to the families who've been evicted. Banks can't -- or won't -- keep up with the volume of delinquent loans, so it takes them a long time to foreclose. In the meantime, some owners have simply stopped paying and are living in the bank's home for free, creating a moral hazard of the first degree.

Mortgage modifications haven't put a dent in the number of foreclosures, so that's not helping in a macro sense. And for the families involved, it means paying too much for a house that they'll never own. Many, if not most, of the modified loans ultimately default. Billions have been funneled to the banks, with very little to show for it except higher profits.

Here's Baker's solution, proposed more than three years ago. I still haven't heard a good argument against it.

Instead of foreclosing on a loan and evicting the family, the lender should take ownership of the house and rent it out to them at a market rate for an extended period.  In many areas, rents are much lower than mortgage payments, so the family can afford to stay put.  Eventually, once the market recovers, the bank could sell the house.

What are the benefits of the Baker plan?

• It would reduce the supply of foreclosed homes for sale.

• It would keep neighborhoods intact and maintain home values by avoiding the blight of boarded-up, abandoned houses.

• It would not bail anyone out.

• It would keep families off the street, but wouldn't force them to pay more than the going rate for rents.

What are the drawbacks to the plan?

• It wouldn't work for everyone. Not every homeowner could afford to rent the house they now live in. Many wouldn't want to rent it.

• Banks don't want to be landlords. And they could potentially lose money by not selling the house now. Or not: dumping millions of houses on the market right now wouldn't be prudent, anyway.

• It would be a retreat from the idea that all Americans, regardless of their finances, should be home owners.



Comments

[DailyBail]

Dean Baker: 'We’ve lost about $6 trillion in housing wealth, and I expect we will lose more.'

http://voices.washingtonpost.com/ezra-klein/2010/08/dean_baker_weve_lost_about_6_t.html

[Martin Andellman]

The argument against this approach is simple and absolute: You can't force Servicers to do it. It's the same reason loan modifications haven't worked to-date... Right? The decision to modify is voluntary, and thus far the courts have concluded that HAMP "has no teeth". There is no private right of action and no enforcement or policing of the rules that are abused by Servicers 365 days a year.

As far as the redefault issue goes, according to the Treasury Department, the re-defaut rate is reduced by HALF when the modification results in a savings of 20% or more per month. So, I asked the logical question:

Of the modifications that saved borrowers more than 20% per month, what percentage were represented by a third party, such as an attorney or other licensed professional? Why can't we know the answer to this question? The banks have the data, the borrower must sign an authorization form stating that they grant permission to the servicer to speak with that third party. So why can't we know the relative efficacy of third parties on the outcomes?

Regardless of this practical consideration, we will not stop or solve what we continue to refuse to understand, and the longer we wait, the more costly and less likely it becomes that we will be able to even once we come to understand it.

The issue isn't the borrowers, it's the bankers that broke the bond and the credit markets. And that is what both caused the foreclosure crisis and allows it to continue today. On July 10, 2007, when Moody's and S&P downgraded less than one percent of the bonds backed by subprime mortgages, investors realized that if they had botched the ratings on these bonds, what about the rest? Overnight lending dried up and banks started hoarding cash. No one could buy a home, no one could refi, and prices fell off a cliff. Foreclosures were inevitible.

The credit markets are still broken. The government is the only purchaser of MBSs, etc. The average FiCO score for a Fannie loan today is 760. Almost 7 million have lost homes. Prices, absent unsustainable stimulus, are in free fall. And we continue to allow the myth of the "irresponsible subprime borrower" to be perpuated, which makes solving the problem impossible. After all, who wants to bail out an irresponsible subprime borrower?

See you in the soup lines...

Mandelman out.

[Texas Dar]

@ Martin Andellman



which makes solving the problem impossible. After all, who wants to bail out an irresponsible subprime borrower?

See you in the soup lines...

Mandelman out.

All done by intent to take down the American People. Just the way they planed it back in the early 70's. To break the strength of this once great country.

To turn us into a 3 world country. Lets face it, were a threat to the "SG", and until were down, they can not prociede. To many are still worried about what happened.

We should be working on what to do now, with whats left. Yesterday is long gone. Tommrow is all we have left. Soup line may start as soon as this time next year.

On a good note, good thing the MSM is not telling the truth. If they would, all "Living Hell" would break out. It would be like Greese. Only 10 times "Worsser" ( Dar's word" ) See, we have Guns Yeat ?

Not for long, the day is just around the corner. Question......................................how do you take out 1/3 of the people in one winter with out fireing one shot.....................???? Check this out. Just out today. & the TV adds start the last week of Sep.

Flu Plan Pandemic Scandal Ahead � An Urgent Warning

Flu Vaccine Doesn't Work for Seniors, So Their Dose is Quadrupled!

Is the Vaccine Safe for Pregnant Women? Nobody Knows!...................Guess what ? on the pakage lable it says no, its unsafe for pregnant woman and the elderly, & kids under 8....................

I agree. It's shocking to think that pregnant women are advised to take a vaccine that has no scientific backing for its safety for either the mother or the unborn child. "Realy".................
http://articles.mercola.com/sites/articles/archive/2010/08/21/barbara-loe-fisher-on-flu-vaccine-changes.aspx

"Tex OuT" !

[Scam Bam Thank You Sam]

Actually the Banksters NEED to foreclose because the same mortgage has been pledged multiple times to multiple Mortgage Backed Secuities. Even if the "homeowner" kept up with the mortgage payments, it still wouldn't satisfy the multiple claims against the mortgage.

QED: The system was set up to fail from the start, with the subprime borrower as the "patsy".

[Bill]

The Banks dont lawfully Own the House. Never did.

NO ONE has EVER received a loan from a PUBLIC financial institution, be it bank or credit union or etc. I can hear the
cries of incredulity already, unfortunately. But onward, without going into an
insane amount of detail: As for the money they "give" people for everything from credit cards to mortgages, they never
do...

As stated by Uniform Commercial Code §1-201(24) and §3-104 (the code that
governs commerce), it is a person's signature put on a loan application,
mortgage application, credit card application, or other promissory note which
gives it value i.e. makes it money. The contract signed (promissory note) is
converted into a "negotiable instrument" by a financial institution and becomes
an asset on the institution's accounting books.


"Federal Reserve Bank of Chicago's publication Modern Money
Mechanics, on Page 6 wrote: 'Of course, they do not really pay out loans from
the money they receive as deposits. If they did this, no additional money would
be created. What they do when they make loans is to accept promissory notes in
exchange for CREDITS to the borrowers' transaction accounts.'"

[Ken Brodeur]

The answer is always simple but evil gangster bankers complicate and confuse the issue. The Bible is the guide and answer, just declare a year of jubilee. Cancel ALL debt and start over. 99% of humanity benefits tremendously, even the elite will only hurt momentarily in there loss. Second step is governments the world wide could start printing their money and spend it into their economies for much needed social programs like fixing roads and bridges and all this interest free. Third, end private bankers from lending money to governments.
The greatest time in American history and arguable be the late 19th century, in which Edison, Ford, Pasteur(Beauchamp), Alexander Graham Bell, the Wright Brothers etc created wonderful new technology for the world and all this was started by Lincoln's green backs, printed interest free. It took the international banksters appoximately 50 years to remove the 346 million greenback dollars from the economy and then create the Federal Reserve Banking/slavery system. End the Fed.

[chunga]

Martin! It's great to see you at The Daily Bail!

[TR]

@Ken Brodeur

If it's OK with you, I'm going to put my take on :"Cancel ALL debt and start over."

I didn't wait for permission.

All debt WILL be cancelled & we WILL be forced to start over.

If any ECONOMIC THEOLOGIST have an argument with me, then SHOW ME THE MONEY.

BANG,BOOM,BAM!!! "WHAT CAN"T BE PAID BACK WON"T BE PAID BACK".

I'm WRONG. We can print all the money (globally) that we need.

[vjbajx vjbajx]

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