Tom Lindmark delves even further into the deeply kooky idea of converting defaulted mortgages into rental agreements. You’ll recall that we mentioned this yesterday, calling it brilliant but unworkable.
Lindmark explains that it would turn mortgage investors into accidental landlords, a situation which brings in a whole host of problems. For instance, would mortgage servicers suddenly be required to make repairs or see that the heat works in winter? Or does this get passed through to the holders of mortgage bonds? Will Vikram Pandit drop by to fix the leaky faucet?
First off, I suspect that more than a few of the investors that own these mortgages might not be thrilled to see their contractual rights to foreclose on the property and dispose of it are going to be real happy to learn they’ve just been turned into long term investors in real property. They probably just want to get whatever is left over from a bad investment and lick their wounds for a while. Instead, the government is going to make them stay in the game.
Next, who is going to manage all of this property. The banks and loan servicing companies are set up to deal with paper not houses. By all accounts they have been swamped just trying to repossess and dispose of the properties. Lord knows how they’ll cope with several million tenants calling about stopped up toilets let alone collecting the rents.
What laws are going to govern these rental arrangements. Each state has its own landlord-tenant statutes and they tend to be relatively complex though definitely not uniform from state to state. There is no comparable federal set of statutes. I suppose you could say facilely that the laws of the state in which the property is sited will prevail but that will get carved up in short order by the lawyers. The press will be shouting where’s the fairness as soon as they realise that an evicted family in Phoenix is on the streets in 20 days while it takes three months in Los Angeles.
Naturally, this is going to do nothing so much as freeze the housing market. Presumably, these sweetheart leases have some maturity which will represent a natural overhang on the market
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