This week, we look at an interesting proposal to help victims of the foreclosure crisis. H.R. 1548, the Right to Rent Act sponsored by Congressman Raul Grijalva essentially gives homeowners facing foreclosure the opportunity to continue living in their home as a renter. The idea behind this being that companies would want to avoid becoming landlords, and would thus work harder with homeowners to find a reasonable agreement.
90 Second Summaries: Season 2, Episode 13
H.R. 1548: The Right to Rent Act of 2011
Sponsor: Rep. Raúl Grijalva (D-AZ7)
Click here to download this summary (pdf)
Cosponsors: 13 (13 Democrats, 0 Republicans). Full list at http://thomas.loc.gov/cgi-bin/bdquery/z?d112:HR01548:@@@P
Senate Companion: None as of 5/12/11.
Status: Assigned to Financial Services Committee (Subcommittee on Insurance, Housing and Community Opportunity). No action scheduled.
Purpose: The foreclosure crisis that began in mid-2007 continues unabated, especially in the most dramatically hard-hit states of Arizona, California, Florida and Nevada. In January 2011 alone, 1 out of 175 homes in Arizona was foreclosed upon. Meanwhile, the large banks behind many of these foreclosures have been consistently enjoying massive profit margins after receiving federal bailouts. As a result, demand is rising for federal action to protect homeowners struggling with underwater mortgages. The approach of allowing foreclosed homeowners to continue living in their homes as renters was adopted by Fannie Mae in November 2009 and is broadened in this legislation to protect all mortgage holders.
Summary: The Right to Rent Act creates a legal right for foreclosed homeowners to stay in their houses by paying “fair market rent” to their creditor.
Details and conditions include:
• Occupants may remain as renters for up to five years following foreclosure;
• Once a foreclosure notice has been provided, the occupants of the house have 25 business days to determine if they wish to remain as renters;
• Eligible homeowners must have occupied the property for at least two years, and it must be their primary residence;
• Fair market rent is determined by the court overseeing the foreclosure process and is subject to change annually.
• Renters cannot be evicted as long as they pay their rent on time, although there is an exception for material damage to the property;
• Will go into effect immediately, for all foreclosures that have not yet been finalized as of the enactment date;
CBO Score: None reported. Proponents claim the measure will carry little to no budgetary cost.
Supporters: Some Democrats, progressive policy organizations and public interest groups, etc.
• Supporters see current efforts to help struggling homeowners as woefully inadequate to address a problem of this scope, and Right to Rent legislation will provide security to millions of homeowners and prevent the blight effect of vacant houses. It will also serve as a strong incentive for lenders to renegotiate mortgages instead of foreclosing.
Opponents: Republicans, financial institutions, realtors, etc.
• Opponents mostly argue that such an approach would violate the sanctity of contracts by changing the terms of enforcement after the fact. Some also believe it would encourage “strategic default” by homeowners and collapse the housing market.
Full bill text: http://www.govtrack.us/congress/billtext.xpd?bill=h112-1548
Rep. Grijalva press release on the bill: http://grijalva.house.gov/index.cfm?sectionid=13&parentid=5§iontree=5,13&itemid=916
CEPR issue brief on Right to Rent: http://www.cepr.net/index.php/publications/reports/the-right-to-rent-plan/
Blog post arguing against Right to Rent: http://housingstorm.com/2011/04/right-to-rent-would-encourage-strategic-defaults/
Fannie Mae “Deed-for-Lease” Program FAQs: https://www.efanniemae.com/sf/servicing/d4l/pdf/d4lfaqs.pdf