Schumer signs on to the Baker-Samwick own-to-rent proposal

By Felix Salmon
July 16, 2009

Great news: Chuck Schumer has signed on to the Baker-Samwick proposal which would allow people living in foreclosed-upon homes to be able to continue renting at the market rate.

Andrew Samwick has revisited the idea, giving full credit to Dean Baker for having the idea in the first place. But I like to call it the Baker-Samwick proposal because Samwick is a conservative economist and his support shows that this proposal can and should have bipartisan support. Says Samwick:

It’s hard to justify why struggling homeowners should get such ungenerous treatment (formerly, a point of pride in the plan) when other entities (AIG’s creditors) have gotten better much better treatment.

Samwick also notes that a bill has already been introduced in the House:

Rep. Raúl M. Grijalva today introduced H.R. 6116, the Saving Family Homes Act of 2008.

The Act would grant homeowners whose mortgages have been foreclosed the right to petition a judge to allow them to remain in the home as renters, and pay a fair market rent. The rent would be set by a court-appointed appraiser and adjusted annually for inflation.

The Saving Family Homes Act is one of the few proposed remedies for the current mortgage crisis which requires no expenditure of federal funds or additional bureaucracy, while giving immediate relief to millions of families facing foreclosure and preventing home vacancies that harm neighborhoods.

I would like to see the Grijalva bill expanded significantly — for one thing it shouldn’t require case-by-case judicial approval, and for another thing it should apply to renters of foreclosed homes as well as owner-occupiers. But it looks like there’s some serious momentum now, and I’m also hearing that there’s been a good amount of groundwork for this proposal put down by the pointyheads at Fannie Mae. Let’s make it happen!

Comments
9 comments so far

On its face, this seems like a great idea, keep people in their homes and reduce the incidence of empty homes. However, there are always unintended consequences, especially when you are talking about a new “right”. I think you should think through the ramifications of such a law before jumping to its support.

An endorsement from FNM and FRE should be considered in the context of their other great ideas, like 125% LTV loans (new) and transferring default risk to the government (old). The entire concept of government subsidized home lending is a failure. The current losses at the two institutions swamp the profit from their entire existence: (http://www.marketwatch.com/investing/st ock/fnm/financials/income/quarter) and the theoretical benefit of a higher home ownership and lower rates are questionable: http://www.heritage.org/research/governm entreform/bg1861.cfm#_ftn10.

I believe the biggest problem with the proposed law is the fact it changes the existing contract between lender and borrower in a way that clearly favors the borrower. Given that change in law and transfer of power to the borrower, wouldn’t lenders require higher rates and more collateral going forward? This will result in lower home prices and another leg down.

I love your blog and you hit a lot of topics that I wouldn’t see elsewhere. However, this is definitely a bad idea and I hope you rally the troops in opposition.

Thanks,

Posted by GT | Report as abusive

P.S. It’s probably unconstitutional since it rewrites every mortgage contract in existence.

Posted by GT | Report as abusive

“It’s probably unconstitutional since it rewrites every mortgage contract in existence”

The RIGHT to foreclose is written into the mortgage, and that wouldn’t change, but isn’t foreclosure a legal process – like bankruptcy – so wouldn’t you just have to re-write that law?

Posted by Rockfish | Report as abusive

Based on Felix’s links, the foreclosure process remains the same. However, there would now be an implicit contract between the lender and borrower that allows the borrower to rent the house after foreclosure. The contract would be defined by the law and applied retroactively to every existing residential mortgage loan. This adds significant uncertainty to mortgage lending and would raise rates and downpayment requirements to offset the additional risk to the lender.

Posted by GT | Report as abusive

Apologies GT, I didn’t have time to do all my research.

In that case it is a lousy idea.

Posted by Rockfish | Report as abusive

Anyone else thinks this would be going back to the middle ages and serfdom and fiefdom.

Posted by callistenes | Report as abusive

First off, I have to say I’m somewhat agnostic on the value of the Baker-Samwick proposal. But I find the argument against it presented in comments logically troublesome.

GT says: “the theoretical benefit of a higher home ownership and lower rates are questionable (inevitable Heritage link)”…but then adds a mere sentence later: “…Given that change in law and transfer of power to the borrower, wouldn’t lenders require higher rates and more collateral going forward?”, adding further on down “contract would be defined by the law… This adds significant uncertainty to mortgage lending and would raise rates and downpayment requirements to offset the additional risk to the lender.”

Well, if higher home ownership and lower rates have questionable value (a theory with which I have some preliminary agreement), then why would it be a bad thing to require higher rates and more collateral, as that would only result in lower-home ownership, which GT (and Heritage) of course are currently defining as no bad thing?

Normatively, I’ve found that one can find a person’s real objection in their most sweeping statement, and here the ‘tell’ is GT’s comment: “The entire concept of government subsidized home lending is a failure.” Note, he doesn’t say ‘goverment-subsized home lending is a failure in the US’ (as it seems to function with indifferent but hardly cataclysmic result in several other countries with comparable growth rates and spending levels), or even ‘government-subsized home lending is a failure in the US so far’ (as it is certainly reasonable to assume that not every good idea has been tried)…

The sudden logical and rhetorical turn, from doubting the benefits of high-homeownsership to quickly decrying policies that would lower home-ownership, smacks of an objection seeking supporting facts, rather than a conclusion derived from them.

Posted by rsuleiman | Report as abusive

What a bad idea?
1. It would force banks to be landlords. While they may be willing to do it for short periods, I doubt many banks want to be long terms landlords.
2. The banks would be forced to lease property to people who have already proven they cannot or will not meet their obligations. Not exactly the best tenants.
3. When would the tenancy end?

Posted by Brad Ford | Report as abusive

I haven’t made a payment in 8 months. I’m not going to want to pay rent. I need a better deal than that.

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