Foreclosure Prevention Through Renting?

That’s the idea that was being tossed around yesterday in the Senate, where several White House officials testified before the Banking Committee on the early failure of federal efforts to control the rising tide of foreclosures.

It was Sen. Charles Schumer (D-N.Y.) to broach the topic, proposing a plan that would allow struggling homeowners on the verge of losing their homes the option to rent the property at “a fair-market rate.”

“This wouldn’t cost taxpayers any money,” Schumer said. “[It] wouldn’t bail out the lenders. Homeowners would be able to say in their home even after defaulting on the mortgage, but they no longer own the home so there’s little temptation to take advantage of this program unless all efforts at reworking the mortgage had failed … A year or two later, maybe the value goes back up and you don’t even need to foreclose on it.”

For the banks, Schumer added, it’s a good deal as well. They wouldn’t have to go through the hassles associated with maintaining an empty house. And the rent, though less than the prior mortgage payment, would be better than nothing. “[Accepting] a fair rent will be less expensive to the bank than foreclosing,” Schumer said.

White House officials appeared receptive. Herbert Allison, the Treasury Department’s assistant secretary for financial stability, said “it’s certainly an idea that we’re thinking about.”

William Apgar, senior mortgage advisor for the Department of Housing and Urban Development, warned of one obstacle: Some homeowners, he said, are surprisingly unwilling to rent the house they just defaulted on. Still, Apgar conceded that, “If you could figure out a fair rent, it seems like it would be a fair deal.”

Schumer had an easy response to that. “It doesn’t seem to me to be too hard,” he said, “to figure out a fair rent.”