Friday, September 07, 2007

Own-to-Rent on the Marketplace Morning Report

Economics correspondent Chris Farrell got the main points of the Own-to-Rent proposal across yesterday on Marketplace Morning Repot and added a bit of his own spice. From the transcript:

You know, the idea is out there. See there's a real problem with bailouts and let's just use the word bailout loosely all right? You don't want to reward speculators and you don't want to reward lenders. You really want them to suffer, you want that pain. They deserve to go to the seventh circle of hell anyway right? Now, but you do want to protect the homeowner that was misled. The benefit of this idea is that it's the most targeted idea I've seen that helps out that person, doesn't throw them out on the street, doesn't force them to go through foreclosure, and at the same time forces the lenders and the speculators to take a financial hit.

And I would add--the proposal does not force the taxpayer, whether directly through a government bailout or indirectly through greater involvement of Fannie Mae or Freddie Mac, to take a financial hit. This is what most makes it appealing to me, of all the different proposed interventions I have seen.

1 comment:

xtoph3r said...

...the proposal does not force the take a financial hit.

So, you are asserting that this program won't require a vast new bureaucracy to ensure compliance? What if the bank doesn't send out a plumber? What's the remedy? Who does the tenant call?

Even so, I may not take a hit as a taxpayer, but I am certainly going to take a hit as a future mortgage holder in the way of increased risk premium charged to cover these kinds of forced holdings.

How much of a hit? Let's say the bank charges an extra 10 basis points of risk premium. On a $400K 30-year loan that works out to $10K over the life of the mortgage. Wow.