I supported a proposal to help foreclosed homeowners by Dean Baker and Andrew Samwick back in June (see “Why not protect the homeowner?”). Apparently, the Obama Administration likes this proposal and is floating a trial balloon via Treasury Assistant Secretary Herb Allison (hat tip Marshall Auerback).
A top Treasury Department official told a Senate panel yesterday that the government is considering a proposal to allow homeowners to stay in their home as renters after a foreclosure.
If enacted, the plan would attempt to address the glut of vacant properties in neighborhoods across the country, helping drag down home values. It would be yet another acknowledgment by the Obama administration that some borrowers cannot be saved from foreclosure despite government and industry efforts.
"It’s certainly an idea we’re thinking about," Herbert M. Allison, assistant secretary for financial stability, told the Senate Banking Committee. A Treasury spokeswoman said that the proposal was being studied but that no decision had been made.
Felix Salmon has been talking a lot about this proposal (see his recent posts here, here and here) and whether it is a viable plan. I believe it is. It certainly reduces housing inventory on the market. But, even more importantly, it prevents unwanted evictions in a period of economic distress.
Some find fault with the proposal. According to the Washington Post, a similar program launched by Freddie Mac has had few takers, suggesting the benefits of such a program could be meagre. Moreover, lenders probably want to become landlords with tenants even less than they want to become residential real estate moguls. However, there is nothing in the proposals preventing lenders from selling foreclosed properties. They merely protect former homeowners from a precipitous eviction.
I would actually like to see this proposal include renters of foreclosed homes as there have been a number of cases of foreclosed owners renting out their property without properly informing the new tenants of the pending foreclosure. The tenants are then evicted in short measure with nowhere to go. A video of evictions in Las Vegas below including an immediate eviction of rental tenants at about 6:00.