One of the obstacles to reducing mortgage foreclosures is that so
many of the homes being foreclosured upon are not occupied by their
owners. Approximately 20 percent of homes are vacant investor-held
properties, while according to the National Low Income Housing
Coalition another 20 percent are occupied by renters.
Addressing the issue of renter occupied foreclosures has been one of
the harder nuts to crack. We should have no sympathy for vacant homes
purchased purely for speculative gain - the best course of action for
those homes is foreclosure, or even better, speculators should be
expected to continue paying those mortgages even in the face of
losses. Where homes are currently rented however, it may be in the
interest of both the bank and the renter to continue that
relationship. Unfortunately, there is one larger barrier: the very
same bank regulators who are pushing lenders not to foreclose.
As banks are not in the business of property management, their
regulators strongly discourage banks from keeping foreclosured
properties on their books. In fact bank regulations generally prohibit
lenders from entering into long-term leases with tenants. Legislation
(HR 2529) introduced by Republican Gary Miller and Democrat Joe
Donnelly would allow banks to do so for up to five years. While the
bill is sure to have some flaws - it merits a closer look.
Although most banks are unlikely to want to become property
managers, allowing some to do so, even on an interim basis could reduce
both the unnecessary eviction of renters and foreclosures on rental
properties. And unlike proposals that would force banks to
make uneconomical modifications, or prohibit lenders from
taking ownership of a renter-occupied home, relaxing regulations
governing bank management of foreclosured properties could keep some
families in their homes without having to violate contracts or
re-distribute wealth.
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