November 26, 2014
The LA Times ran a nice story on Friday about the Coronel family of Azusa, California, and how they were able to buy back their foreclosed home “for $280,000, far less than the $400,000-plus debt that had gone into default.” They had been able to stay in their home after their foreclosure because “Fannie Mae gave permission in 2010 for the Coronels to stay on in the Azusa house as renters.”
The article asked if Fannie Mae’s allowing this “indirect” principal reduction reflects a change in policy. That’s because before the Coronel’s case, Fannie Mae and Freddie Mac required foreclosed homeowners to pay their entire outstanding mortgage balance before being able to repurchase their homes. That’s while other buyers were able to pay the lower market price for the same property.
Yesterday, FHFA, which regulates Fannie and Freddie, announced that this indeed is a new policy. It applies, however, only to those homeowners who, like the Coronels, are renting their homes as Fannie and Freddie real estate owned (REO) properties:
Under the new policy change for existing REO properties, former homeowners who are able to repurchase their home – or a third-party able to purchase on their behalf – may do so under the fair-market value policy that already applies to other purchasers of REO properties.
This is a great example of how Right to Rent (R2R), which CEPR’s Dean Baker first proposed at the depths of the housing crash, can increase the security of foreclosed homeowners and their families by allowing them to remain in their homes as renters, paying the market rent. Fannie and Freddie adopted versions of R2R, otherwise known as their REO programs. Currently they have about 121,000 properties in their REO inventory.
As Dean noted yesterday about the Coronel family and potentially thousands of other REO renters:
This is really the ideal. They got to stay in their home and the lender decided it was in their best interest to sell it back to them at the current market price.
Right to Rent is a concept that’s been endorsed across the political spectrum, from Bill Clinton, to The New York Times, to Chuck Schumer, and even Bush administration economist Andrew Samwick. Rep. Raul Grijalva has introduced an R2R bill in Congress, but it hasn’t made much progress inside the Beltway.
While, fortunately, the worst of the housing crash seems to have passed, there have been reports of recent and predicted upcoming jumps in foreclosures. Perhaps this new policy from FHFA will help bring attention back to the idea of Right to Rent and how it could help many, many homeowners and their families.
