Be Like the Rich: Why Keep Paying for What Doesn’t Pay Off?


9 July 2010

Today’s most e-mailed article on the New York Times website is “Biggest Defaulters on Mortgages Are the Rich” — in a nutshell, homeowners with loans over $1 million are more likely to have stopped paying their mortgages than those with more modest homes.  As law professor Brent White states, the wealthy “may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest.”

Serious Delinquency Rate

As argued in the New York Times, businesses and banks — and now we know, also the wealthiest homeowners — make such decisions in their own financial interest regularly, so “to put the onus for restraint on ordinary homeowners seems rather strange.”  And as pointed out in the Wall Street Journal, homeowners who give up their mortgages for cheaper rental payments end up with extra cash to spend each month, a “stealth stimulus” for the economy.

CEPR co-director Dean Baker’s Right to Rent (R2R) proposal would provide path for ordinary homeowners to escape underwater mortgages, while being able to stay in their homes and communities — preventing neighborhood blight.  Under R2R, those facing foreclosure would have the option to remain in their homes for a substantial period of time as renters paying the market rent.  There are also numerous advantages in enacting R2R: it is simple, it can take effect immediately, it requires no taxpayer dollars, and it creates no new bureaucracy.

Reps. Grijalva and Kaptur have introduced an R2R bill in Congress, and publications including The Nation, LA Times, Washington Post, and New York Timeshave published pieces about the concept.  Bloggers, including Baseline Scenario, Felix Salmon and Ezra Klein have pointed out that even conservative economists agree that R2R makes sense.

Helping underwater borrowers stay in their homes?  Check.  Prevent the blight of abandoned homes?  Check.  Stimulate the economy?  Check.  Let’s hope good commonsense ideas like Right to Rent can be implemented to help the millions of Americans facing foreclosure.

Nicole Woo is Director of Domestic Policy at the Center for Economic and Policy Research. This article was published in the CEPR blog on 9 July 2010 under a Creative Commons license.

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