Ideas for Mitigating Foreclosures: Lease-Purchase

While far from robust, most economists are treating the March jobs report of 216,000 net new jobs as a sign that the recovery is finally picking up some steam. But we have miles to go before we sleep. At this rate of growth, it will take us another seven years to get back to the 5 percent unemployment rate of early 2008. This means there will be a great deal of pressure on local housing markets, where mortgage default and home foreclosures will continue to devastate formerly stable families and communities alike. I’m fairly surprised that the unfolding hardship is not generating more attention here in DC among policymakers and I’m also fairly certain that there is shared interest in findings ways to limit the extent of household displacement and property abandonment.

Next week, we will be holding a public event that seeks to focus attention on the current foreclosure crisis and what policy ideas can be deployed to help communities and families mitigate the impact of the current foreclosure crisis. You can join us in person or tune in to the webcast live or on demand.

We will be looking at what’s working and not working at the local level, and also what specific set of policies and practices can be scaled and deployed to effectively manage the crisis. Sen. Merkley from Oregon is scheduled to help kick off the session, as he and his staff have been working on elevating this issue and shining some light on potentially promising proposals. Obviously, with the current political climate  it will be difficult to generate the degree of bipartisan engagement necessary to forcefully address this problem. That’s a shame and given the scale of the problem, it’s a real indictment of our politics. But I also think another challenge is to raise the profile of specific policy ideas that can make a difference.

Across the country, a range of strategies and policies are being tried out and are candidates for replication. For example, in a recent issue of Shelterforce put out by the National Housing Institute, Miriam Axel Lute describes the promising strategy of lease-purchase agreements. Also known as rent-to-own, lease purchase allows for “not-quite-mortgage-ready buyers” to occupy the house they intend to buy as a tenant until they are ready to take on a new mortgage. What I like about this is that is keeps homes occupied and is a potential avenue to keep families under the threat of foreclosure in their homes but under new terms. Both of these scenarios are preferable to the alternatives of a long-term vacant home and a displaced family.

It is a good idea and there is a growing body of practice out there showing how it can work. Most lease-purchase programs are trying to stabilize neighborhoods and create ownership opportunities for families that have credit problems. But it is not easy. As Miriam writes, it is hardest when lease-purchase is approached as a plan B because this usually means the planning and capacity needed to make a successful program are not in place. Each property has to have an answer to a set of hard question, such as how to structure the transition to ownership, how are properties maintained in the meantime, and what happens if a tenant can’t make the transition successfully?

Experience to date seems to confirm that better outcomes are achieved when a program identifies their goals and strategies up front. This way a program can focus on developing screening guidelines and targeted financial counseling, or can work with existing homeowners who need to get out from under the terms of their current mortgage. The organization Self-Help is actively investigating what it would take to bring a national lease-purchase initiative to scale.

To realize the potential of lease-purchase as a foreclosure mitigation strategy, policy should encourage greater partnership between local community developers and those able to provide the counseling necessary to successful engage with families that may benefit from this approach. This may require increased support to the nonprofit community groups that have been experimenting with lease-purchase arrangements but need more resources to successfully engage with families threatened with losing their homes. Given the growing experience with this type of intervention, we should be actively looking for ways to build on its potential.

Lease-purchase is one of the many ideas we should be elevating in the conversation to address the current foreclosure crisis.