Democrat’s Proposal Would Turn Foreclosed Homeowners into Tenants

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.

“This bill is urgently needed for the millions of American families facing risk of foreclosure, and I am glad to have had the opportunity to make this statement that the sanctity of the American home and family should take precedence in this time of crisis,” said Grijalva.

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.

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].”

Nonetheless, the idea of “own-to-rent” is one that enjoys some support from conservative economists, including American Enterprise Institute (AEI) Fellow Desmond Lachman and former economic advisor to President Bush, Andrew Samwick.