The Arizona legislature has a novel plan to forestall home foreclosures. They want to allow foreclosed homeowners to stay in the house for an additional year as renters. Not a bad idea, but it has its faults.
First, we should point out that Arizona is home to more foreclosed houses than almost anyplace but Las Vegas. It is worth pointing out that underwater housing and foreclosures are problems tied to poor personal decisions, and the people who made those decisions are now demanding that someone bail them out. Don’t get me wrong. I think one of the only ways out of this mess is to prop those people up, but I also bet that they will vote for some right wing teabagger nut this year, not for the party that has done the most to bail them out… the Democratic Party.
Now lets consider the consequences of allowing the displaced to stay in place as renters. What this means is that people will be paying money to the bank for a year without getting any credit for the payments. So the debt will continue on the bank’s books, even though the borrower is still making some form of payment to the bank. This looks like a politician’s trick to me. Get the masses past the election without being thrown out of the house and without squeezing the mortgage holders. Everyone is happy all around.
Here is a better plan. Pass a moratorium on foreclosures. Nothing will force the mortgage boys to the table faster. They want to foreclose because it’s the only way they know to get the junk off their books. The fact that it will clog the market with junk is of no consequence to them. Neither is the fact that it will leave many people broke and homeless. Put an end to foreclosures indefinitely and demand that mortgage companies develop a plan for working out each bad loan. You make the people happy and actually force the lenders to sit down and talk rationally with the borrowers. That is a much better result.