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

By: deadbeat

deadbeat — Fri, 17 Jul 2009 21:04:02 +0000

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.

By: Brad Ford

Brad Ford — Fri, 17 Jul 2009 14:25:29 +0000

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?

By: rsuleiman

rsuleiman — Fri, 17 Jul 2009 14:12:49 +0000

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.

By: callistenes

callistenes — Thu, 16 Jul 2009 21:49:02 +0000

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

By: Rockfish

Rockfish — Thu, 16 Jul 2009 21:00:59 +0000

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

In that case it is a lousy idea.

By: GT

GT — Thu, 16 Jul 2009 20:51:07 +0000

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.

By: Rockfish

Rockfish — Thu, 16 Jul 2009 20:02:50 +0000

“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?

By: GT

GT — Thu, 16 Jul 2009 18:18:21 +0000

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

By: GT

GT — Thu, 16 Jul 2009 18:15:37 +0000

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,