I wrote about this program back here. A few additional thoughts.
– There’s a question as to why are we setting this up? The CEPR put out a statement with one compelling example:
“This policy takes advantage of the fact that in many former bubble markets, ownership costs are likely to be far higher than the cost of renting an equivalent unit, if the homeowner purchased their home near the peak of the market. In many cases this gap can be dramatic. For example, the savings on a moderate-priced home purchased near the peak of the market in the Washington, DC area could more than $1,300 a month. The gap between ownership costs and renting in the Los Angeles area could be almost $2,000 a month.”
– There’s pretty robust empirical evidence that a foreclosure eats up ~28% of a house’s value in resale, and growing evidence that there is a significant, though relatively small, externality effect on neighbor’s houses. I don’t know the extent to which this externality would grow in a housing bubble crisis, though my suspicion is that it would bias towards a larger effect.
– Foreclosures are expected to to peak in late 2010. As such, this is a problem that will be growing for another year; new policy moves aren’t chasing the last problem.
– To whatever extent you can characterize a neighborhood by the amount of ‘order’ and ‘disorder’ it has, a worry for people moved by “broken-window” theories of crime, it is obvious that a massive wave of foreclosures would increase the amount of disorder a neighborhood has. If we are ok jailing a generation to save a window, why wouldn’t we ask some bond holders and property developers to take a haircut to save the whole house?
Though this predominately effects poor neighborhoods, this vacant, not maintained and otherwise abandoned property is everywhere, and will get worse next year. Here’s Noompa worrying that this winter will be particularly bad for this issue. Here’s a major piece on the abandonment in Cleveland. There’s a large amount of human devastation that will be coming with this wave; letting people stay in their homes with a decline in rental rates while keeping their communities intact will take some of this pressure off in the middle of a crisis.
– Daniel catches a problem: “The occupant agrees to be responsible for regular maintenance, to keep the property in good condition, and to permit marketing of the property for sale.” The obvious problem example is: Let’s assume that this winter, a Deed For Lease property has the heater break. Who fixes it? Presumably not the tenant, since he or she doesn’t want to invest in a home she doesn’t own. There’s also the reasonable assumption that the tenant is struggling financially, so the the person with the deed (Fannie in this case) will be responsible. Ideally, rolling this program out targeted at communities as opposed to random draws from the nation can overcome this; local groups can maintain these condos subject to competition for this service. We’ll see if that manages to work or not.
I hope a lot of eyes are watching this. Realizing the strengths and weaknesses of this program, tweaking where necessary, will hopefully lead to moving it forward into a larger framework.