A good idea for fixing housing
Commentary: Baker's rental plan would stabilize prices
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Here's Baker's solution, proposed more than three years ago. I still haven't heard a good argument against it.
Instead of foreclosing on a loan and evicting the family, the lender should take ownership of the house and rent it out to them at a market rate for an extended period. In many areas, rents are much lower than mortgage payments, so the family can afford to stay put. Eventually, once the market recovers, the bank could sell the house.
What are the benefits of the Baker plan?
•It would reduce the supply of foreclosed homes for sale.
•It would keep neighborhoods intact and maintain home values by avoiding the blight of boarded-up, abandoned houses.
•It would not bail anyone out.
•It would keep families off the street, but wouldn't force them to pay more than the going rate for rents.
What are the drawbacks to the plan?
•It wouldn't work for everyone. Not every homeowner could afford to rent the house they now live in. Many wouldn't want to rent it.
•Banks don't want to be landlords. And they could potentially lose money by not selling the house now. Or not: dumping millions of houses on the market right now wouldn't be prudent, anyway.
•It would be a retreat from the idea that all Americans, regardless of their finances, should be home owners.
A great deal of the uncertainty that's now plaguing the economy stems from the uncertainty over housing, and especially the trajectory of prices. If Americans think they might lose more money on their home, they'll be unlikely to increase their spending. That thriftiness is a very good thing on an individual level, but not so good collectively.
The government should reconsider Baker's idea before housing prices fall any further.
Rex Nutting is MarketWatch's international commentary editor