The scam is going to get worse in the housing market. I mean the scam that will let the predators and hucksters, who lured people into bad deals, off the hook, either via Congressional bailouts or actions by the Federal Reserve. And the outcry has to build now so that we don’t let, once again (remember the savings and loan scam), the speculators skate, leaving hundreds of thousands of people to lose their homes. Here is one plan to consider to guarantee people do not lose their homes.
My colleague Dean Baker, the co-director of the Center for Economic and Policy Research, offers this idea:
The Subprime Borrower Protection Plan
This proposal ensures that subprime borrowers will not be thrown out of their home because they cannot meet the terms of a predatory mortgage. The plan:
- Gives homeowners facing foreclosure the option of renting their home for as long as they want at the fair market rate. This rate is determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage.
- The proposal requires no taxpayer dollars or new bureaucracies. It would be administered by a judge in the same way that foreclosures are already overseen by judges. It simply changes the rules under which foreclosures can be put into effect.
- The proposal does not bail out in any way lenders who made predatory mortgages or made risky gambles in the secondary market.
- There are no windfalls for homeowners. They will have the right to stay in their house, but will no longer own the home. This means that there is no real incentive to abuse the program. The plan would be capped at the value of the median house price in a metropolitan area, so it will not benefit high income homebuyers.
- Rents will be adjusted in later years by the Labor Department’s consumer price index for rents in the area. If either the owner or renter believes that their rent is unfair, they can arrange, at their own expense, to have the court make a second appraisal.
- After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely.
Now, why should you trust Baker? Well, he was one of the few voices who warned early on about the housing bubble—a warning that the media and the "experts" chose to regularly ignore. Had Baker been listened to (as opposed to, for example, the cheerleaders from the National Association of Realtors whose chief "economist" published a widely quoted paper "Why The Real Estate Boom Will not Bust and How you Can Profit From It"), we might not face the pickle that so many people find themselves in.
The point is that this is a moment where a reckoning must occur—for the speculators, big business advocates, hedge funds and for the so-called experts. Baker’s proposal is a clear path to make sure that people do not find themselves homeless.
