Panel Proposes Leasing to Stem Foreclosures

Mortgage-backed securities investors and servicers should start thinking about becoming landlords so a troubled borrower can remain in a house with an option to buy the property back, according to a conservative academic panel that monitors regulation of the financial services industry. The Shadow Financial Regulatory Committee says it would be less disruptive and costly to offer homeowners facing foreclosure a lease in exchange for the deed to the property. Investors would incur a loss as part of the deed-in-lieu transaction, but avoid foreclosure maintenance and resale costs, according to Kenneth Scott, professor of law and business at Stanford University. The shadow committee noted that the Treasury Department's Hope Now initiative does not address the problem of delinquent borrowers with negative equity. This approach "might be able to deal with a large portion of these delinquencies without the taxpayer bailing out the homebuyer or the investor." Mr. Scott said.