"Occupancy in default": a solution to future mortgage crises?

As we all know, there has been a wave of primary residence foreclosures in our country. Foreclosures always do two things: someone who is living in a house can't live there anymore, and the bank or mortgage company now has another house in their inventory. However, when there are many foreclosures happening within a fairly short period, as is the case in America now, a third thing happens: significant numbers of houses remain vacant, creating crime and safety hazards in the community.

There are various government initiatives that may or may not solve this problem, but it seems to me that it is partially due to the absolutist way in which mortgages are structured. That is, either you make your payments, or you lose your home.

There is another possibility, one that I think would be a net win for all concerned, especially in times of mortgage/home ownership crisis: occupancy in default (a word I just made up meaning something that continued occupancy of a property after defaulting on a mortgage).

The way this would work is very simple. When a homeowner fell behind on payments to a sufficient degree that foreclosure proceedings would commence, the mortgage lender would make all of the standard notifications, put the home on the market, and try to sell it, exactly as under current law. The difference is that the homeowner would not be evicted. That is, the dwelling would continue to be occupied by the homeowner until someone else bought it and was ready to move in. Furthermore, all of the usual negotiations would continue regarding interest rate, payment schedules, and so on, and if an agreement could be reached, and the homeowner could raise the cash and meet the requirements before someone else bought the house, then the (possibly modified) mortgage could be resumed with no disruption of the homeowner's family. On the other hand, if someone else bought the house and wanted to move in before the previous owner could meet the requirements, then a conventional foreclosure and possible eviction would take place.

I believe that it would also be advantageous for previous mortgage holders who are still occupying the premises to have a one-shot opportunity to accept (and to qualify for) the terms agreed to for the would-be owners. I say "one-shot" because the last thing we would want would be a bidding war between the current occupant and the prospective owners. Basically, the law would establish that in the case where a previous occupant in default still occupied the premises (under the occupancy in default law), the previous owners would have an opportunity (three business days?) to qualify for the same terms as the new occupant before the sale could close. If they did qualify, they would be able to stay under those terms; if they did not, the sale could close with the new buyer, but only on those terms.

I also believe that a court should decide whether and how much money the in-default occupants should pay the mortgage holder. This will depend on their circumstances, not on the size of the debt or even the value of the property. One possible rule of thumb is that it be no more than 1/4 of their net or "take-home" income. As long as they remained in occupancy in default, the payment would be split between principal and interest in proportions reflecting the term implied by the payment amount and the size of the debt, with an interest rate determined by the average rate for the time and region. This amount would be garnished from their wages if necessary. That is, it is theoretically possible eventually to pay off the mortgage and become the full owners of the property while still in occupancy in default. (Of course, not if someone came along willing and able to pay the full market value of the property.)

Now reliance on occupancy in default would not solve all of the problems of bad mortgage debt, but it would certainly do one thing: it would not allow situations such as the current mortgage crisis to cause largescale evictions at a time when new buyers are not available. Owners would not be so quickly evicted and would at least have a chance to retain the property; lenders would receive a reduced but greater than zero flow of cash from defaulted properties. In "good" times, where there is a healthy stream of home purchases, this new law would have little effect, because new owners willing and able to pay the market value of the property would come along fairly quickly. Basically, the new law would only serve to add a three-or-so-day delay into the purchase timeline. But in "bad" times, this law would have a profoundly positive effect on both lenders and borrowers.

I believe that both lenders and borrowers would be in favor of this possibility, but I do believe that for it to work fully, it should be supported by state and/or federal law, because part of the motivation for it is to protect our economy against crises of mortgage lending. For example, how would the occupancy in default status of a property affect inheritance or other transfers of the property (it seems to me that the law might want to distinguish between transfers to someone already living in the property versus to someone else).

The main target of occupancy in default is, of course, primary residences of mortgage borrowers. However, I can see little reason why the laws should not be extended to all residential properties, or even to all improved properties. It is less clear how it could help with unoccupied and/or unimproved property, but on the other hand, I don't see how it could actually hurt.

Greg Shenaut

"Soviet" aggression against "democracies" ?

The recent Caucasian conflict has awakened the anti-Communist Right around the world. I have actually heard the battle described in terms of "Soviet" and "communist" aggression against "democratic" and "Christian" neighbors. And, even if those words are not used, it is clear that they are beneath the surface: Georgia, the birthplace of Joseph Stalin, is seen as a "democracy", and a "Christian" nation, while Russia is not. Russia is considered "Communist" and "Soviet", while Georgia is not.

In fact, though, Russia and Georgia are both former parts of the USSR, and are both capitalist democracies today. And, in both formerly officially atheist countries, Christianity is now the main, state-favored religion. The old vocabulary and the old framing simply do not work.

It is true that one can quibble about variations of democratic procedure, yet, there is no doubt that both countries are proudly democratic and thoroughly capitalistic.

So, what vocabulary should we use to talk about Russia? One advantage of the old Soviet/Communist/Atheist versus Democratic/Capitalist/Christian dichotomies is that it is very efficient. With that vocabulary, there was never any need for a deeper analysis of goals, motives, or plans: the commies wore the black hats, the democracies wore the white ones. Is there any possible replacement vocabulary that could hope to do this job?

Another word I've seen is eastern versus western, but of course Georgia is just as eastern as Russia, so that doesn't work.

Basically, I don't think there is a replacement.

This has enormous implications for our political discourse. In order to castigate the Russians, we will have to drill down into whatever the specific action is that they have done. There won't be a convenient shortcut. We will be forced to analyze the issues involved, and consider that maybe there will be two sides to the situation, with good and bad on each.

There are certain other very interesting questions that this raises for the Right.

The biggest is: what about the Cold War? Since Communism was invented way back in the 19th Century, we have been defining international relations in terms of the struggle between it and Capitalism. Somewhere along the way, Communism was tagged with "atheist" and "dictatorship", while Capitalism got "Christian" and "democratic". For many decades, both before and after World War II, those tags were adequate to explain every detail of the economic and military aspects of our foreign policy. However, if the Right is right (which I doubt, but for the sake of argument), and Russia is about to embark on its earlier imperialistic adventures, then perhaps the problem during the Soviet years wasn't with Communism (or with dictators or with atheism). Maybe the problem all along had to do with Russia: its history, its neighbors, its peoples, its geography, and so on. This is a potientially mind-altering thought.

Holy Matrimony

Just read today that the US Census Bureau will not record married couples as married unless they are of different genders. In other words, the words "married", "husband", and "wife" will have the implicit modifier "heterosexual(ly)" in the census documents.

This seems rather petty on the part of the Census Bureau, but it is completely on a par with most cases where religious traditions, practices, and/or beliefs become part of civil law. For many years, I have advocated that the word marriage, which is so highly loaded with religious baggage, be removed completely from our civil law and replaced with a purely civil term, like "civil union". We could have laws that specified under what conditions civil unions could be created and dissolved, and what rights and responsibilities flowed from their existence. In parallel, there could also be marriages--religious unions--and each religion could define their own set of conditions and definitions. However, no marriage would be recognized by the law unless it also met the criteria of a civil union. Religious leaders could become qualified to perform civil unions, but they would be obligated to follow the civil law in so doing. This would be very rational, and would solve a heap of social and politico-emotional problems.

However, California and Massachusetts have now made this approach impossible by legally extending "marriage" to include homosexual unions, which are recognized by almost no religious organization, or by the US Census Bureau. It is no longer quite so easy to resolve the problem by use of the "civil union" versus "marriage" dichotomy.

The only thing I can think of as a possible direction for change is for religions to back away from the word marriage, and to use a word that has a strong religious connotation, such as "holy matrimony". Since there is nothing that corresponds to husband or wife that are strictly religous words, perhaps something like "sanctified husband/wife" could be promoted. This terminology would never be used informally, but it could be used whenever necessary to distinguish religious from purely secular marriages.

For example, my marriage, performed by a marriage commissioner in British Columbia, is a legal marriage, and under it, I am a husband and my wife is a wife. Yet, we would never refer to our union as an instance of "holy matrimony", and our roles in it were never sanctified by any religious organization. I would be perfectly content to stop using the words "marriage", "husband", and "wife" completely, in favor of "union", "partner", "spouse", and so on. Under my proposal, homosexual married couples could use the same terminology, while only couples whose marriages were sanctified in the religious sense could reasonably use "holy matrimony" or "sanctified spouse".

It is interesting to note that some churches actually do recognize homosexual marriage, so for members of those religions, a homosexual marriage, civil union, or even a legally unrecognized relationship could be an instance of holy matrimony. It really is because of such confusions and ambiguities that I still think that the best solution is to get the government strictly out of the "marriage" business.

Supply and demand versus illegal immigration

One of the advances of 20th Century business policy is the post-Depression concept of using government to assist rather than hinder the law of supply and demand. It has been observed that human beings have the propensity to resort to sneaky and often illegal methods to increase profits or reduce costs, and that those practices tend to interfere with what might be called the inside-the-box application of market forces.

I hasten to note that if we view the system globally, those sneaky and illegal methods can well be viewed as manifestations of the same laws, and that getting caught and punished may, in the (very) long run cause adjustments in the system. In fact, the laws I want to talk about could well be seen as exactly the kind of adjustment predicted by global supply-and-demand processes.

The specific set of laws of interest here are labor laws, laws passed to better the lot of workers. These include minimum wage laws, laws regarding unions, laws regarding medical care and on-the-job safety, and laws regarding discrimination.

Normally, if you have a class of job that is viewed by workers as very undesirable because it is physically strenuous and dangerous and seasonal, the benefits given to individuals who do that work would have to go up. This is simple supply and demand in the labor market. In some types of undesirable jobs, we already see those pressures at work. For example, plumbers and sanitation workers have been paid well in most places in the US for quite some time.

However, there is a large set of jobs where pay and benefits have remained very low, even illegally low, namely, the jobs filled by illegal immigrants.

Employers, given a choice between remaining in our "box" of labor laws and saving a lot of money by hiring illegal undocumented workers for substandard wages, tend in large numbers to break the law.

In effect, this practice has forged a leaky connection between many different "boxes", or economic systems, the largest two being Mexico and Canada, our immediate neighbors. These leaks allow the substance of each system to invade the others, and all of the systems are distorted by these invasions.

In our system, the natural cycle of movement among the various economic levels is impeded, because there is an increasing lack of viable low-end jobs for our native workers. If all of the jobs taken up by illegal immigrants had to be filled by legal residents, and therefore at competitive levels of pay and benefits, two things would happen. Efficiencies would be made to reduce the number of workers needed and to improve the experience of doing the work, and a large number of jobs would be available at the low end of our economic ladder, but jobs with benefits, healthcare, and middle-class salary levels. People who now go into crime or on the dole would be able to earn a good living by doing those jobs.

The solution to all this is not to tighten the immigration system, to build fences and so on. The solution is to enforce existing labor standards and hiring laws. In other words, we need to plug this enforcement hole so that it is no longer viable to seek workers who get less than a legal, living wage with the kinds of benefits that Americans should be able to expect.

Some might object: paying farm workers or day laborers enough money to attract legal residents might increase illegal immigration because they could make more money. This could be true, if the change is done in a half-assed way, for example, forcing employers to increase wages, but not enough to entice legal workers, and/or by not enforcing labor and hiring standards.

In order to be effective, employers at every level, from people who might hire a day laborer to build a fence up to agricultural giants who hire lettuce pickers, have to understand that it will personally cost them more to break our labor laws than they could ever save by doing so.

I would say that the best way to approach the problem is through a tax. That is, even though it is not legal to hire an undocumented worker, the practice could be taxed enough to increase the cost to that of the competitive standard, plus a penalty of, say, 10% for each year from the time the offense occurred to the time the tax was paid. Under this system, there would be no tax on hiring illegal workers, if they were paid enough money in wages and benefits. This is the case because that practice does nothing to encourage illegal immigration. The normal enforcement of laws regarding hiring of undocumented aliens would still apply as it does now, but in parallel to the tax system.

This tax would normalize the application of labor market supply and demand; it would in effect plug the holes in our economic system that is sucking in so many undocumented workers and leaking out money and jobs for our legal residents. I would rather deal with those leakages at the legal/conceptual level than try to create physically impermeable borders.

UPDATE

I just saw this article describing how employers who want to hire legal workers do not receive the support they need to actually allow workers to be checked. Apparently, these are employers who are already paying a fair, competitive wage, who have been hiring workers who use false documents. Under the proposal I am making here, there would be no penalty for those employers. From my perspective, they are not increasing the flow of illegal immigration. In this case, the problem is solely with the government to enforce its laws regarding immigration, including the obvious computerized cross-checking of records.

One area where I have not been in step with my colleagues on the left has to do with a good national identity card. I am in favor of this and always have been. It needs to have cutting-edge security technology, and it must be backed with a good sample of demographic and physical data. However, it must also be convenient and free of charge to all legal residents. The reason I am in favor of this is that once it is in place, a number of items on the long-standing left agenda will be facilitated (lower-cost, more standard healthcare coverage; less intrusive border crossings; better checking of gun purchasers...). And, in this case specifically, it could allow us to dispense with things like border fences and sweeps of factory floors by the Migra.

Greg Shenaut

Doing away with retirement

There is a standard way of looking at work versus leisure wherein if someone has worked "long enough" or "until they have reached a certain age", that the "leisure years" begin, in other words, that the person can retire. I think we need to re-examine that idea.

Start from the concept that our society will support, at a reasonable level, all who cannot support themselves. In the United States this is less true than in most other developed countries, but let's take it as a starting point. A corollary is that someone who can partially support himself might still receive a graduated supplement, but that someone who is fully self-supporting at an average economic level should receive no supplemental support from the government.

Next, let's take it for granted that someone who is rich enough not to need to work can retire whenever they want, whether society considers them to have worked enough or to be of retirement age. The corollary is that someone who is rich enough, who has a high salary level, or who gets support from their family, can decide not to work full time whenever they want.

Based on those premises, there are then several different categories of retirement: people of any age who can no longer work due to physical or mental incapacity; people of any age who can no longer work full time or at high enough level to support themselves; people who are above age 60 or 70 who can still work enough to support themselves in full or in part; people of any age who have saved or inherited enough so that they no longer need to work if they ever did to support themselves.

I argue that no mechanism of retirement per se is needed to account for any of those cases. If you can't support yourself, social programs will take up the slack. If you can support yourself, then social programs do not need to be involved.

What about pensions? I would say that a pension should not be viewed in terms of retirement. It should be viewed in terms of a bonus for long service, in other words, as part of the compensation package. No company should be required by the government to provide a pension to its employees, but obviously those that do will be more attractive.

This view of retirement is seen very clearly with military pensions. In the United States, a young man or woman can enlist in the military at age 18 (or 17 under some circumstances). If they continue to serve until age 38, they can retire with a 50% pension for the rest of their lives. I am an unusual case, but I (finally) finished my PhD when I was 35. If I had done so as a member of the armed forces, I would have begun my work life with a substantial pension from the military. Some might find the idea of a fat pension at such a young age obscene, but I don't, because to me, it is only the name "pension" that is inappropriate. In fact, it is very much part of the compensation package for members of the military, and it is one of the most attractive aspects of military service. If it were eliminated or postponed until, say, age 65, you would see re-enlistment rates dwindle to a trickle.

I think that this concept should be embraced explicitly by all employers--why not give employees a reward for long service, that they can start to enjoy after, say, 20 years on the job? Just like in the military, the amount could be increased beyond this, up to (say) 100% after 40 years. Whatever. My only objection to this is that it be thought of in the context of retirement.

Few military retirees (other than those who can no longer work for some reason) actually retire. Instead, using the security and cushion of their long-service bonus, they go into a wide variety of fulltime careers, be it ranching/farming, writing, technical careers, mercenary work, police work, and so on. After all, at age 38 or so they still have 25 or more years even in the traditional view of "retirement age" to work, and if we set no such years, they could have perhaps in some cases twice that long.

So, I say let's get rid of retirement as a concept. Instead, let's support all of our citizens with a quality level of life (including, by the way, all childcare and medical needs). The only very important thing is that the entire system must be seen as fair, and must be accepted by everyone. For example, there must always be work for the able, even if it's WPA-style make-work. No one who is able should ever receive a free ride from the state. Given that all must work, most will prefer to choose their job rather than be assigned one by government administrators.

OK, I know, there are issues with this idea, so why did I write down?

My starting point was with the changes that are occurring with birthrates. I had just read a comment that adjusting the retirement age will not suffice to support the large number of retirees that we will soon have. Perhaps small adjustments can't succeed, but a system that eliminates the concept of retirement could do it. That is, someone who at age 80 is still working and earning a living will pay taxes, along with his fellow workers of all ages, to support those of all ages who can't do so. It seems to me that that is the kind of approach that we need. The other reason is that I am 60, and as long as I continue to be healthy, I have absolutely no interest in retirement (as in not working), and I have no problem helping to support, say, a young man of 30 who is disabled and cannot support himself.

Greg Shenaut