We need to place mortgage lenders on a path to settling up with underwater homeowners. One of the few viable ways to do this is for banks to accept the voluntary surrender of deeds and then lease the homes back to their former owners. The former homeowners should then retain a right to purchase their homes back at fair market value, after, say, five years, during which time they would need to get their financial affairs in order.
Congress could pass legislation, within the bounds of constitutional protection of contracts, that would require lenders to provide such a lease-back arrangement to any borrower who wants one. The former homeowners would pay rents set in accordance with local rates (which in almost all cases would be considerably lower than the total of their former bubble-era mortgage payments, taxes and insurance premiums).
The main difference between the Alpert plan and the Baker plan is that Alpert gives the homeowners a free option to repurchase their home at fair market value after five years. I’m not at all clear what the point of this option is, since it seems to me only to complicate matters needlessly. Under the Baker plan, the bank is free to sell the property to a landlord; under the Alpert plan, by contrast, the bank can’t sell the property, since it needs to hold on to the home for five years just so that the former homeowner can be given the option (but not the obligation) to buy the house back.
Banks are not in the business of owning property, and generally want to sell any property they do own as quickly as possible. Forcing them to hold on to houses for five years makes them very unhappy, and has no obvious benefit to anybody else. After all, given that the bank in general would love to sell at a fair market value, one can assume that the former homeowner pretty much always has the option to buy at the market price, even if that right isn’t enshrined in legislation.
My best guess is that the right to repurchase is Alpert’s attempt to prevent a wave of evictions in five years’ time — but I suspect that in five years’ time, most homeowners-turned-renters will either have moved house, or fallen behind on their rent payments and been evicted, or simply bought their house back off their landlord anyway — leaving very few to be evicted when their statutory period of renting expires. And in any case, few landlords ever want to evict a good tenant who has paid full market rent on time every month for the past five years.
So given the choice between the Alpert plan and the Baker plan, I’m still a fan of Baker. But either of them is clearly better than nothing.