New Administration Proposal Would Let Foreclosed Borrowers Rent Their Homes
Friday, July 17, 2009
A top Treasury Department official told a Senate panel yesterday that the government is considering a proposal to allow homeowners to stay in their home as renters after a foreclosure.
If enacted, the plan would attempt to address the glut of vacant properties in neighborhoods across the country, helping drag down home values. It would be yet another acknowledgment by the Obama administration that some borrowers cannot be saved from foreclosure despite government and industry efforts.
"It's certainly an idea we're thinking about," Herbert M. Allison, assistant secretary for financial stability, told the Senate Banking Committee. A Treasury spokeswoman said that the proposal was being studied but that no decision had been made.
"This could make sense as a last resort for troubled homeowners who would otherwise lose their homes and find themselves with nowhere to live," said Sen. Charles E. Schumer (D-N.Y.).
Freddie Mac, the mortgage financing company, launched a similar program in March, allowing homeowners the choice to stay in their homes after foreclosures as renters. But the program has not attracted many participants, said Brad German, the company's spokesman. Most former owners instead choose to accept money to voluntarily vacate under a program known as cash-for-keys, he said.
The new proposal comes as increasing numbers of borrowers are facing foreclosure as they lose their jobs and fall behind on payments. RealtyTrac reported that foreclosure filings, which can range from default notices to bank repossessions, were up 15 percent during the first half of the year compared with the corresponding period in 2008.
The administration is considering initiatives to help unemployed workers get help with their mortgages, said William Apgar, senior adviser for mortgage finance at the Department of Housing and Urban Development. "The current very high level of unemployment is making the already difficult task of helping families struggling to meet their mortgage payments even harder," he said.
Under the federal program known as Making Home Affordable, lenders are paid to lower borrowers' mortgage payments. About 160,000 loans have been modified into lower-cost loans so far. The administration has said the federal effort has already been more successful than previous programs. But officials are also prodding lenders to hire more staff and better train employees.
It is "disgraceful" that borrowers are still struggling to get help more than two years into the housing crisis, said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Committee on Banking, Housing and Urban Affairs. "Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold?"