Heller bill encourages banks to rent back foreclosures

Overshadowed Thursday by the massive mortgage settlement between the states and major banks was the introduction of a Senate bill that could allow people to remain as renters after their homes are foreclosed.

The bill by Sen. Dean Heller, R-Nev., allows the banks as well as Fannie Mae and Freddie Mac to enter into leases for as long as five years with foreclosed occupants or other renters.

At the end of five years, tenants could be presented with a option to buy if their fortunes have recovered.

While a small part of the major mortgage mess, Heller said the approach could benefit stressed-out families and keep neighborhoods from disintegrating into ghost towns as they have in parts of the Las Vegas Valley.

"When families move, their children often have to change schools," Heller said in a speech. "So now not only are children forced to move from their homes, they are also leaving behind their schools and their neighborhoods. This kind of destabilization is harmful for families who are already struggling.

"By providing an opportunity for the homeowner to stay in their home, the bank is giving families a chance to regain sound financial footing," Heller said.

The Obama administration reportedly is readying a proposal to turn foreclosures into rentals after soliciting ideas last summer on how they could be managed.

The idea does has pitfalls. It has sparked debate among housing experts whether it would work to allow massive inventories of troubled properties to be absorbed in an orderly fashion or whether it would just prolong the housing slump.

Fannie Mae already operates a "deed for lease" program that allows occupants to rent after transferring their home to the government-backed mortgage firm, but the deal is only good for a year. Renters pay market rents that often are lower than their old payments.

In the House, Rep. Gary Miller, R-Calif., has sponsored a companion bill to Heller's. In 2009, a similar Miller bill passed the House by voice vote but was not taken up in the Senate.

With Heller being challenged for election this year, perhaps not surprisingly Nevada Democrats scoffed at his effort. Eric Koch, spokesman for challenger Rep. Shelley Berkley, called Heller's bill "a political move clearly designed to distract from his disastrous housing policies."

Democrats say those include a vote he cast last year to defund an underutilized Federal Housing Administration loan modification program. While many Democrats voted to keep trying, Heller said the program "is not working for our state."

In 2009, Heller was in a bipartisan group that opposed an element of Obama's recovery plan that would give bankruptcy judges the ability to reduce mortgage principals. They argued it would drive up home ownership costs as banks looked to recover their losses.