In Stockton, pretty much everyone knows someone who has had to deal with being underwater. The city has consistently ranked near the top in national foreclosure lists, jostling with Las Vegas for this infamous title year after year. Foreclosures are a blight on Stockton, a problem for banks and a nightmare for the families who have to leave their homes. But it doesn’t have to be this way. What if there was a system to keep families in their homes, protect property values, and help banks reduce the costs of eviction and maintenance?
It’s not a fantasy: A program known as “Right to Rent” addresses major social and economic issues surrounding the housing crisis, and, if expanded, could have tremendous implications for families in Stockton facing foreclosure.
For a couple years, this idea has been touted as an alternative to the costly and callous foreclosure process. First proposed by prominent economist Dean Baker of the Center for Economic and Policy Research (CEPR) in DC, Right to Rent gives families who would be facing foreclosure under regular circumstances the option to stay in their homes in return for the deed to the house. The homeowner still loses the property, but is able to rent the property from the lender at the rental market rate. This program would have tremendous benefits for all parties involved:
– Families who would ordinarily be kicked out of their houses now would have the option of staying as renters. While they still lose the property, they won’t be evicted and their credit will be spared as well.
– Neighborhoods that would otherwise be pock marked by vacant houses would see their property values stabilize as foreclosable homes would remain occupied. On a social level, this program keeps communities intact and kids from having to change schools.
– Banks avoid the costs of maintaining vacant property, keeping homes occupied and therefore more attractive to potential buyers.
In a city that has been as ravaged by foreclosures as Stockton, it is easy to see how this kind of program could be enormously beneficial. Keeping families in their homes means no vacant property for banks to try and maintain. It means no lawns painted green. No vacants being ransacked for their copper wiring. No foreclosure bus tours of neighborhoods.
Opposition to this plan should be nonexistent. Banks get to charge rent for a property that would otherwise be left vacant. No public money is used and no one is bailed out. This process is also better for banks than short sales because it gives the banks time to find a good buyer, where as a short sale nets banks less than the market value for the property. The only parties that lose are the speculators who have been swooping in from out of town to gobble up foreclosed homes on the cheap.
Despite the obvious benefits, Right to Rent never got traction in Congress. Presented by Democratic House members, “Right to Rent” legislation died in committee in 2010, and a 2011 version is still stuck in committee and will probably suffer a similar fate. However, some banks see the value in this type of arrangement and are beginning to roll out their own plans in select markets. Bank of America announced a “Mortgage to Lease” pilot program last month in Arizona, Nevada and New York. The bank is sending out notices to a small number of delinquent homeowners offering to let them stay in exchange for their deed. Bank managers have noted that keeping people in their homes is good for the market and should help them cut costs overall. This pilot program is focusing on owners who are at least two months past due on their mortgage and also at further risk for foreclosure. If the program is successful, Bank of America may expand it to other areas.
Hopefully, Bank of America sees benefits from their program and other banks will follow suit. As we have seen, Right to Rent makes everyone better off: Families stay in their homes, banks get to charge rent while keeping the property maintained and neighborhoods don’t have to suffer from vacants dragging down property values and fostering crime. While it is a little late, a Right to Rent program would help keep Stockton communities together and stabilize housing prices.