Own To Rent

When the going gets weird, the weird turn pro.
---Hunter S. Thompson

Whenever pressure is applied to fragile minds, those minds tend to bend. The latest example of an idea that demands a reply of "get bent" is "Own To Rent." As discussed today by Paul Jackson at Housing Wire, this wonderful concept was first concocted in a place full of the usual suspects: a think tank. Of course, a loon in Congress has seized upon it and is now trying to make it a reality through ill-conceived federal legislation.

We’ve all heard of rent-to-own, but a new idea from House Rep. Raúl M. Grijalva (D-AZ) would turn troubled former homeowners into renters, sort of an own-to-rent housing proposal. On Thursday, Grijalva unveiled the proposal — H.R. 6116, the Saving Family Homes Act of 2008 — ahead of a House Committee on Oversight and Government Reform subcommitee meeting. The Subcommittee on Domestic Policy, headed up by Dennis Kucinich (D-OH), had scheduled a hearing for Thursday afternoon to discuss how to target federal funds towards managing vacant and abandoned properties.

Grijalva’s proposal would grant homeowners whose mortgages have been foreclosed the right to petition a judge to allow them to remain in the home as renters, and pay a fair market rent. The rent would be set by a court-appointed appraiser and adjusted annually for inflation, the Congressman’s office said in a press statement.

The proposal would limit eligibility to mortgages on single-family, principal residences, occupied for at least 2 years, which sold for less than the median home value in the metropolitan statistical area in which the home resides, or the median value in the state, if MSA-level pricing information is not available.

Why does it not surprise me that the hearing at which this idea is likely to be one of many playing out in left field is chaired by the tin foil hat-wearing Dennis Kucinich and the always-immoderate Maxine Waters? I suspect that one of the other ideas for saving neighborhoods  from the scourge of abandoned homes that will be floated at the hearing will be to populate them with aliens from the planet Zardoz.

This singular form of government infringement on private property ownership rights is the "brain" child of  think-tanker Dean Baker.

The bill incorporates many of the ideas put forth by housing policy wonk Dean Baker, co-director of the Center for Economic and Policy Research, an economic think-tank. Baker first proposed his “Own to Rent” strategy for subprime borrowers in an op-ed last year.

As those Guinness guys exclaim: "Brilliant!" Only someone who sits in a room thinking abstractly for a living would assume that this idea has a snowball's chance in a hot place of making it through Congress. Then again, we're looking at some legislation working its way through the bowels of Congress that is almost as whacky, so it's got a shot.

Let's leave aside, for the moment, the political objections to this scheme. From a practical standpoint, it's not been my personal experience that "home renters" save a single family neighborhood; it's "home owners" who do that. The value of emotional pride of "ownership" should not be underestimated, nor should the fact that ensuring that upkeep, maintenance and repairs are performed promptly as needed protects the owner's monetary investment in the home. The worst neighbors I've had have been renters of single family homes situated in neighborhoods consisting primarily of owner-occupied houses. I foresee problems with a plan that proposes to force foreclosing lenders to accept as tenants the owners that the lender is foreclosing upon. I would think that many of those renters, bitter over the cruel twist of fate (after all, no one is ever responsible for their own bad decisions and if "stuff happens," it must be someone else's fault), might not treat that house with the same respect that they did when they owned it. I think that they might be worse occupants than a new home owner, and that waiting for the lender to sell it to an owner-occupant might be better for the neighborhood, even if the house sits vacant for a period of time. Obviously, there's no way to prevent lenders from selling to landlords, but why ensure that the house becomes a rental? At any rate, it's a debatable point.

Turning back to the political aspects, Paul notes that Baker's idea is supported by some "conservative"  economists. I assume that they're "conservative" in the same manner that Rudy Giuliani is "Catholic." Like Humpty told Alice, "When I use a word, it means just what I choose it to mean—neither more nor less." I can't think of a less "conservative" idea than a judge forcing a foreclosing lender to rent the home to the defaulting borrower and determining what a fair rent will be. As Paul observes, I'm not alone.

Of course, more than a few in the industry see the bill as a form of rent control; which is a pretty bad word for anyone that has spent time in the mortgage servicing industry, to say the least.

"Sure, let’s just let the government manage rents and set allowable charges," said one servicing manager sarcastically, who asked not to be named. "That’s worked out really well for places like Oakland [California]."

It's bad enough when state and local governments, our "laboratories" of "progressive" social experimentation, start screwing around with the free market and end up screwing the pooch by reason of the operation of the laws of unintended consequences and of human nature. At least there, if the law is too far over the line, national banks and federal thrifts can always look at federal preemption principles to reign in the wing nuts. However, when the federal government attempts to implement this "moonbattery" on a national basis, you start to get not just irritated, but alarmed.

Then again, ideas like this are why men invented alcohol and started cultivating the poppy.

Comments

[Andrew Samwick]

I consider myself a conservative economist, and I think that once "do nothing" is taken off the list of the legislative and executive branches' possible policy responses, Baker's Own-to-Rent proposal is the best option put forward so far.

I like it because it has the best mix of distributional consequences. First, taxpayers don't lose anything directly. Second, there is no bailout--lenders who made bad loans and speculators who invested in them do worse relative to the status quo. Third, borrowers who took on more debt than they should have lose their opportunity to have any equity, but they don't lose their place to live. I blogged about this last summer here and most recently here.

Other than "do nothing" or "let the courts handle it," what do you think the appropriate conservative policy response should be?

[Kevin]

Once "do nothing" is taken of the list, the sky's the limit. I wouldn't take it off the list and I wouldn't expect a conservative economist to do so, either.

You get a free pass to promote your blog this time only, prof, which was the real reason for your comment, wasn't it?.

[Ivan]

Kevin, I like your blog, but seriously, your suggestion that Andrew Samwick ( http://en.wikipedia.org/wiki/Bobcat_Goldthwait ), former Chief Economist to the President's Council of Economic Advisors, is posting on yours to self-promote just doesn't pass the chuckle test.

You could instead tackle the honest criticism of your position, both his as well as Menopausal Management Consultant's (who I'm sure you're already seeing in your referers, as it has a few orders magnitude higher traffic rank than yours per Alexa).

[Kevin]

And yet, here you are, Ivan, wasting your (and, I assume, your employer's) valuable time on this itty, bitty, no-traffic blog authored by some no-name lawyer from the middle of nowhere, in response to an off-the-cuff rant posted last night merely to amuse myself, and trying to drag me into some useless argument with people I don't know and care even less about, and who can't even get my name right. For what purpose?

It's unfortunate that I didn't pass your chuckle test, but I'll bet that test is graded on the curve, isn't it?

I could be spending my time billing clients or, more enjoyably, drinking a Shiner Bock poolside. You folks have way, way too much time on your hands and, seriously, you need to get an actual life. Try it, you may like it. But, thanks for reading and have a nice day.

[Arlanio]

"Have a nice day." LOL

[DDavis]

The stuffed shirts don't seem to get the fact that this entire blog is basically a goof, do they? You ring the bell and the self-important salivate. When will they ever learn?

[Barbara]

Prince Ivan the Idiot is a regular reader of this blog but couldn't figure out that you had your tongue in your cheek when you made the comment about Mr. Samwick plugging his blog on your blog. Amazingly clueless, no?

[Kevin]

Do any of you people have an actual job? I mean one that requires something other than cruising the Internet? Are you on vacation? Thank all that is holy for the IP banning function of Typepad.

I appreciate the interest, but c'mon!

Arlanio: Sorry, I meant to use the happy face emoticon, too. I forgot. That would have sent you over the edge, I expect.

DD: They'll never learn. Bank on it. Most of the blogosphere is an echo chamber and "self-important" doesn't even begin to describe many of the gaseous bloviators who populate it. Like me, for example.

Barbara: Yes.

Buh-bye. Have a great holiday weekend.

[Jogger, Texas Ranger]

Hey, Hoss, I went to Alexa and it doesn't show any traffic figures for you. If you don't publish your traffic figures, maybe that explains why you rank below the menopausal management consultant. Ivan's kind of a dishonest little twit, isn't he?

[Kevin]

I may have to steal "menopausal management consultant" from you. No, I don't publish traffic figures, so Alexa doesn't show any traffic, and, yes, that was intellectually dishonest of "Ivan." No more intellectually dishonest than the reference to "referers" (sp.), however. I got an insignificant number of click-throughs from that pretentious rag sheet, which shows what smoke and mirrors some these blogger frauds use. "Management consultant" can be just a synonym for "unemployed middle-aged has-been."