Fixing foreclosures with a right to rent

Five months after launching the Home Affordable program designed to keep millions of Americans from losing their homes to foreclosure, the Obama administration had to summon mortgage executives to D.C. in late July to ask: What gives? So far, 230,000 loan modifications are up and running. That represents just 15% of the homes that were hit with foreclosure filings in the first six months of 2009
according to RealtyTrac
, and comes on the heels of 2.3 million properties that received foreclosure notices in 2008.

The magnanimous explanation is that the mortgage industry simply needs time to get its systems and personnel up to speed on processing applications. The less magnanimous take, as reported in the

The New York Times

, is that mortgage servicers have plenty of financial incentives to drag their heels.

For all its public jawboning, the administration nonetheless insisted that Home Affordable is “
on pace
” to help millions of homeowners over the next three years, and set a public goal of having 500,000 loan modifications up and running by November.

But at the same time there seems to be growing acknowledgment that foreclosure prevention is just one part of the equation. Attention is now shifting to what to do with all the existing foreclosures and the steady stream that is expected to continue flooding the market even if Home Affordable lives up to its goals.

One proposal making the rounds in D.C. is
Right to Rent
: a program, first floated two years ago by liberal think-tanker Dean Baker, that would allow folks who have lost their home to foreclosure to continue living in the home as a renter. As Baker sees it, giving the foreclosed the right to rent their home at a market rate for a long stretch (perhaps five to 10 years) is a win-win. The landlord (an investor or bank) gets market rental income, the homeowner isn’t uprooted, property values aren’t further depressed by foreclosure fire sales, and taxpayers aren’t asked to bail out lender or borrower. In mid-July a Treasury official confirmed the administration is
mulling the idea
. The House has supplied traction too, recently passing the Neighborhood Preservation Act, which would permit FDIC-insured banks to lease back homes to folks it has foreclosed on. Did you catch that artful spin? This isn’t solely about helping the foreclosed; it’s about protecting your neighboring home’s value.

I’m a bit dubious how this might play out in the real world. First off, determining “market value” rent is going to be interesting. The current thinking is that appraisers will handle that job, and we all know
how smoothly things
are going in that neck of the real estate world. I’m also curious how homeowners stripped of their equity will respond to sending a rent check to the lender who foreclosed on them. (Or to the investor who buys the foreclosed property from the lender.) Thoughts?