Monday, August 20, 2007

Own to Rent

Here are some more details from Dean Baker on how his proposal to ease the burden on subprime borrowers would work.

If the government is going to intervene in the aftermath of this meltdown, I haven't seen a better proposal than this one.


xtoph3r said...

How does this ease the burden on subprime borrowers one iota? Post-foreclosure, borrowers are already free to rent whatever they can afford at "market rates." Giving them an option to rent their former home does nothing to help their situation, puts the banks in the property-management business (add that cost to your risk premium) and encourages moral hazard (add that again to your risk premium.)

I don't see it. Maybe this is just one of those blindingly intelligent ideas that only whip-smart finance types can get behind, you know, kinda like structured finance...

Fritz said...

Mr. Baker is a socialist, his plan is welfare. It was a nice touch not mentioning the political affiliation of Robert Rubin, and the stark disingenuous label of "staffer" for the under secretary of the Treasury. He is an example of those that cry foul the loudest if the private sector benefits from a government contract, but advocates a government system that makes voters livelihood dependent upon Party. As David Stockman said, "they were consenting adults."

ed said...

xtophr makes a crucial point...the poor can already access the rental market. Why do they need this?

In general I think it's an incredibly bad idea to try to help "subprime borrowers" as a group. Why not just help the poor in general? I think the poor who rent
are more worthy of our help anyway. Renters don't have any guarantee that they will be able to stay in their homes after the lease is up, nor do they have the right to appeal to some supposedly neutral "appraiser" if they think their rent is too high.

Baker compares these rent-setting "appraisers" to current property appraisers, but there is a world of difference between someone estimating a market price for a client and someone simply setting a price which is binding on one of the parties. How would rents be able to adjust efficiently in such a system? Why should we give advantages to foolish buyers not enjoyed by prudent renters?

Andrew, do you actually support this, or do you just think government will have to do something and this is the least bad?