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.