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Officials seek to rent foreclosed homes

Amityville’s vacant Wellington Park Villas in Amityville, which

Amityville’s vacant Wellington Park Villas in Amityville, which are at risk of foreclosure. Federal officials are proposing to let families rent out foreclosed homes, an idea that banks say will only result in more home owners not paying mortgages. (Aug. 5, 2011) Photo Credit: Barry Sloan

Federal officials are looking at ways to turn vacant, foreclosed homes into rental properties.

One method, endorsed by prominent local economist Pearl Kamer, of the Long Island Association business group, would turn the normal foreclosure-and-eviction process on its head: Instead of evicting foreclosed families from their homes, rent the property to them for a while, perhaps with an option to buy later on.

Bankers are unconvinced the idea would work.

One of the signature effects of the housing collapse is growing numbers of vacant homes. On Long Island, the Census found the number of nonseasonal vacant houses and apartments jumped to 39,348 last year from 22,352 in 2000. Nassau and Suffolk have a total of almost a million year-round housing units.

Vacant homes are a blight on their neighborhoods, dragging down home values and sowing concern among residents worried about vandalism and other problems.

There's interest at the federal level in finding ways to rent out vacant homes. One idea floated in a request for comment in August by the U.S. Treasury and Housing and Urban Development Departments included turning as many as 250,000 vacant homes owned by federally run mortgage agencies into rental properties, perhaps by selling them to private investors.

Kamer likes the alternative of letting families stay in their foreclosed homes as tenants. "I think everybody agrees that the housing problem on Long Island has to be fixed before the economy can recover," she said in an interview.

If the rent is set lower than the mortgage payment, she said, it gives the family an affordable place to live, avoids having yet another vacant house blight a neighborhood and gives the bank some income on a property that would otherwise be an expense.

Further, she said, home prices would benefit if fewer foreclosed homes are put on sale, since they typically depress the prices of all homes.

Peter Elkowitz Jr., chief executive of the Long Island Housing Partnership, a group that works for affordable housing, said he thinks the rental concept generally makes sense. "It's hard to find a legal three-bedroom [rental] home for a family."

The idea also seems worth considering to Bill Dilks, a part-time cabdriver and swimming pool servicer from Mastic Beach, who narrowly avoided foreclosure by getting a mortgage modification when work got scarce.

"I'm sure people living in their cars would like the option" of renting, said Dilks, 57.

Bankers, key players in any such arrangement, worry about whether it would work in practice.

At New York Community Bancorp., which is based in Westbury, chief executive Joseph Ficalora dismissed the idea, contending that giving homeowners in default the option of staying at a rental that's lower than the mortgage payment would encourage still more homeowners to stop paying their mortgages. "It tugs at the heart strings but economically it's the wrong thing to do," he said.

Douglas Manditch, chairman and chief executive of Empire National Bank, headquartered in Islandia, said of the rental proposal, "It certainly sounds like a possible alternative." But he worried about banks' liability -- they would need to carry liability insurance -- and wonders also about the legality of renting rather than foreclosing, noting that some mortgages are owned by investors in the form of bonds. "That mortgage," he said, "could be part of a security somewhere."

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