Amid the signs that the economic recovery is under way, albeit slowly, the housing market is also showing signs of life. However, many economists and pundits warn that the housing recovery continues to be hampered by the overhang of foreclosed homes. The lack of home price appreciation is blamed in part on the number of homes in the foreclosure process and those already owned by the lenders. The belief is that this bullpen of potential supply added to the normal inventory of homes on the market continues to depress home prices and also creates a lack of urgency among potential buyers.
Recently, the Bank of America instituted a program to allow distressed borrowers to give back the deeds to their homes and remain as tenants. This program has several important benefits. First, it avoids the lengthy foreclosure process. Second, and more importantly, it enables homeowners to remain in their homes.
In New Jersey, we also have the constitutional requirement for municipalities to provide affordable housing. During the housing boom years, municipalities collected over $300 million in affordable housing fees that are supposed to be used for affordable housing purposes. Most of this money has never been spent and continues to sit unused.
Why not allow municipalities to use this money to purchase homes in their towns from distressed homeowners and allow the homeowners to rent them back from the town, like the Bank of America program? The homeowner would be able to remain in their home. The town would benefit by receiving rent from the homeowner that would likely exceed the property taxes that would have been paid. In addition, we should allow the town to credit the home toward its affordable housing requirement. When the homeowner eventually moves out, the town could either rent the home to another qualified renter, or if the town sells the home, put the sale proceeds back into the affordable housing fund or purchase another home to be put to affordable housing purposes.
The current lender would benefit by getting the loan repaid, even if it has to take a “haircut” on the principal repayment, and the lender avoids taking the property back into its portfolio, as they would in a foreclosure.
The family benefits by staying in their home avoiding the disruption of a distressed move.
The neighborhood benefits by eliminating the blight of vacant homes.
The town benefits in reducing its affordable housing obligation without any new construction or rehabilitation and through dispersing the affordable homes throughout the municipality rather than concentrated in one or two places.
The housing market benefits through allowing a more normal supply/demand pricing of homes without the specter of a deluge of foreclosed homes coming on the market in a short time.
It would behoove our policy makers to consider this simple suggestion to help the housing market and address the affordable housing dilemma.