And with lenders saddled with $50,000 of the cost it was no surprise that in March, Bank of America launched one of the first commercial “Right to Rent” pilot programs (or as they called it, “Mortgage to Lease”) that forgave any outstanding mortgage debt and allowed homeowners to rent their home from Bank of America in order to avoid foreclosure.
Implementing this sort of program in Maine would help combat Maine’s 4.3% foreclosure rate, the 7th highest in the nation, and reduce foreclosure costs Mainers incur.
A Right to Rent program would almost eliminate the average $29,443 cost that Maine families and communities pay for each foreclosure. On average, this would save Maine homeowners $7,200, local governments $19,229, and local neighborhood home owners $3,016, on average.
Where do these costs come from?
For homeowners, foreclosures damage credit ratings and contribute to stress-related health problems, while lenders must pay expensive legal and property management fees. Most foreclosed homes are abandoned, so the administrative costs of foreclosures to local government can be as much as $34,199 depending on the state of the building. Foreclosures also decrease values for local homeowners – in a weak housing market with falling property values (such as the one created by the collapse of the $8 trillion housing bubble), even a small number of foreclosures accelerate this slide. For example, Immergluck and Smith found that each new foreclosure lowered nearby property values by 0.9% and the Center for Responsible Lending projected that 2.2 million foreclosures would cause 40.6 million homes to suffer a total loss of $352 billion in property value.
Right to Rent is a simple solution that minimizes the devastating effects (and expensive costs) of foreclosures. Right to Rent allows foreclosed homeowners the option to rent their home for an extended period of time, giving the homeowner the chance to buy back their home from the lender when they reach financial stability. Because foreclosures often affect whole neighborhoods at a time, a Right to Rent Program would incentivize these long-term renters to maintain their properties, sustaining local property values. In addition, Right to Rent would not use taxpayer dollars nor increase bureaucracy. A judge would administer it in the same way that judges already oversee foreclosures. Finally, a Right to Rent program would not reward predatory lenders by bailing them out.
Right to Rent legislation is a win-win for legislators, their constituents, and lenders. While the appropriate legislation might take time to pass, Maine lenders should take the initiative right now, follow Bank of America’s example, and create their own Right to Rent programs.
The bottom line is that eliminating the cost of foreclosures through a Right to Rent program will ultimately benefit Maine’s families, Maine’s government, and Maine’s economy.