Liberal Economist Urges Government to Seize Private Homes

     What’s a constitutional amendment among friends? Not much, if you are a liberal economist like Dean Baker. Baker wrote an August 20 piece on urging Congress to eliminate foreclosures and let homeowners live in those houses indefinitely.

     Baker’s radical plan might run afoul of the 5th Amendment protection against being “deprived of life, liberty, or property, without due process of law,” according to the American Enterprise Institute’s Ted Frank. Frank, who directs AEI’s Liability Project, said that such a plan is “obviously problematic.”

     Baker wants to turn homeowners who can’t pay the bills into unhappy renters by allowing “moderate income homeowners the option to remain in their homes indefinitely as renters, paying the fair market rent.”

     While Frank said a lot would depend on the details and that he “couldn’t say it’s impossible,” he stressed that it would raise serious constitutional issues.

     Baker’s column, entitled “Save Subprime Borrowers, Not Bloated Bankers,” was a typical example of the left’s class-warfare mindset about mortgage problems. Baker advocated aiding people who borrowed more than they could afford, while hurting banks and financial institutions by forcing them to become landlords with unhappy tenants.

      Baker, co-director of the left-wing economic think tank the Center for Economic and Policy Research, argued to help victims of the “predatory mortgage” market. Under his plan, if the homeowner can’t work out lower payments with the mortgage holder, “the foreclosure process would be changed so that the current homeowner would have the option to remain in their house as a renter paying the fair market rent.”

     Of course, mortgage holders often can’t change the nature of the mortgage because they are usually resold and packaged together as securities. That means Baker’s plan really is to simply take the homes and ignore the debts.

     The procedure would entirely seize operation of the home, even if it were sold to a new buyer. “After the foreclosure, the mortgage holder would now own the house and be free to sell it to another person, but the former homeowner would still have the right to remain as a renter, regardless of who owned the house,” Baker wrote.

     He claimed his plan works without requiring any elaborate new bureaucracy and without requiring a single dollar from the taxpayers.” He ignored issues of enforcement costs, monitoring of homes and the overall impact the plan would have on the value of homes both locally and nationwide.

     In a related housing issue, Rep. John Dingell (D-Mich.) wants to eliminate the tax deduction for mortgage interest on homes 3,000 square feet or larger. According to the August 24 Baltimore Sun, the senior economist for the National Association of Realtors estimated that would “a national median house price decline of 4 percent – on all homes, not just large houses."

     Imagine the impact of Baker’s proposal.