Felix Salmon has been a one-man lifeline for an idea called "Own to Rent" originally proposed by Dean Baker and which I happily co-signed in an op-ed in August 2007. In a nutshell, the idea is to allow homeowners who would otherwise be foreclosed to stay in their homes as renters paying a fair market value. The mortgage holder would own the property, but the value of the individual property probably would be lower due to the option granted to the former owner. In this post, I consider how my thinking about the issue and the relevant context has changed in the past two years.
The original justification for the special treatment accorded to struggling homeonwers in my mind was twofold. First, if it were targeted, however imperfectly, at low-income borrowers in mortgages that were imprudently written, the plan would appropriately punish the hucksters who got us into this mess. Second, there are social costs to foreclosed housing, and keeping some continuity in occupancy would help counteract them. The plan Dean sketched out was designed to make sure that the former owners lost all of their equity -- they got the option to stay and pay rent but nothing more. It looked like the smallest way to intervene, without taxpayer funding and without excessively rewarding imprudence, to address these problems.
Given the attention that Felix has given the plan lately, and the rumblings it has gotten in policy circles since it was proposed, I thought about whether I would still endorse the idea today. The answer is "yes," particularly under the caveat that I expressed at the time that this is what I think we should do only if we choose to do anything at all to directly assist struggling homeowners.
But consider the change in the financial and economic environment since then:
Overall, I'd have to say that I am surprised that so little has been done to directly help struggling homeowners, at least compared to other groups in tough financial circumstances. Since there has been so little change in that area, I still think of Own-to-Rent as a leading proposal if it can legally implemented.