Ideas: Fixing the World July/August 2009

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The housing mess is screaming out for a simple but effective solution. Ideally, such a solution would keep underwater homeowners in their homes even after they found themselves unwilling or unable to pay their mortgages; it would stop renters from being evicted from foreclosed homes when they’re up-to-date on their rent; it would slash the number of foreclosure sales, which are driving house prices down nationwide; it would improve the quality of the national housing stock; it would give banks an easy-to-value income stream, instead of an impossible-to-value home, whenever they foreclosed on a property; and it would cost the government nothing. Amazingly, all of this can be done with just one policy: a decree that whenever a bank forecloses on a home, the current occupant has the right to remain in the property indefinitely, simply by paying the fair-market rent. Banks are killing each other by racing to sell their foreclosed houses as quickly as possible, before they fall further in value; this policy would force a cease-fire that would help all of them. It would also put an end to the equally destructive syndrome of soon-to-be-foreclosed-upon homeowners trashing their houses before they’re kicked out. This plan might not single-handedly end the recession. But it would certainly help.

Felix Salmon is the finance blogger for Reuters.
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Felix Salmon is the finance blogger for Reuters.

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