Own To Rent

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 the 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 “homeowners” 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 homeowner, 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.

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