When it comes to the housing crisis, a lot of complicated ideas have been tossed around to finally put an end to the foreclosure problem.
The Bush administration has campaigned for the Hope for Homeowners program which was allocated $300 million. Then there is the highly controversial program by the Treasury Department which has access to a $700 million rescue budget. Still, the country is looking at 300,000 foreclosure filings per month.
The problem with these existing anti-foreclosure programs is that they cannot prevent (in fact they even unintentionally encourage) families without foreclosure problems to default on their mortgages. Aside from this, most taxpayers would find it unfair to be taxed for a problem they didn’t even cause. The idea of helping homeowners who made unaffordable loans and helping the banks who allowed billions to go to these bad loans would make one gnash his teeth at the thought of supporting such a program.
Government does not even need to resort to these expensive measures. The best thing to do is to temporarily revise the law on foreclosures so that troubled families may be allowed to rent their homes for a substantial period and at the market rate.
If the homeowner stays as a renter, more families would stay in their homes, no taxpayers’ money will be expended, and banks will even be encouraged to negotiate a condition for families to stay as homeowners. It is more profitable for a bank to have a foreclosed house rather than a house with renters.
Bernard Wasow of the Century Foundation has proposed provisions to facilitate the transition to renter and return to homeowner state. Daniel Alpert of Westwood Capital on the other hand has a slightly different proposal which allows troubled homeowners to buy back their homes after 5 years.
In the end, the logical solution to foreclosures is to keep homeowners in their homes. Simple yet effective.
Leticia Carvalho has been educated in the finer points of the foreclosure market over 5 years.