Competing For Sale and For Rent signs hang in the front of new townhomes in Centerville, Virginia.
Competing For Sale and For Rent signs hang in the front of new townhomes in Centerville, Virginia. - 
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Scott Jagow: This week, Congress is debating ways to help out homeowners stuck with awful mortgages. There are many ideas floating around. One in particular from economists Dean Baker and Andrew Samwick strikes our economics correspondent Chris Farrell. It's own-to-rent. OK, Chris, explain this.

Chris Farrell: The simple way is, Congress passes legislation and says the current homeowner has the right to stay in the home as long as they like. All they have to do is pay fair market rent. And of course under this plan, the homeowners turn over the property to the mortgage holder. So the mortgage holder does get the property, and it's a bailout that really protects the low-income homeowner who was sold a bill of goods.

Jagow: Do you really think that Congress would do something like this?

Farrell: You know, the idea is out there. See there's a real problem with bailouts and let's just use the word bailout loosely all right? You don't want to reward speculators and you don't want to reward lenders. You really want them to suffer, you want that pain. They deserve to go to the seventh circle of hell anyway right? Now, but you do want to protect the homeowner that was misled. The benefit of this idea is that it's the most targeted idea I've seen that helps out that person, doesn't throw them out on the street, doesn't force them to go through foreclosure, and at the same time forces the lenders and the speculators to take a financial hit.

Jagow: How exactly would this be a punishment in any way for the mortgage lenders?

Farrell: They are now landlords and it puts them in the landlord business and that's always a risk when you speculate and that's what the lenders were doing, were speculating, don't use any other word. But it does essentially say 'you know what, you're not going to foreclose on this property, you're not going to put this person out on the street, you're not going to be able to rewrite the terms of the mortgage loan by the way as long as that tenant meets the fair market value bill, you're a landlord.

Jagow: So do you do anything to help the mortgage lenders get through this?

Farrell: No. I don't see any reason why you should. Actually you know the Federal reserve is doing what it should do and I'm a big fan of what Ben Bernanke has been doing and I think all this whining from the hedge funds and Wall Street about the Fed needs to cut rates, look, the Fed's not in the business of bailing out these big banks. I mean look at the money that's been made. What was it last year, bonuses on Wall Street were what $60 billion? I think what we're going to see over the coming year or two is a Darwinian process of the market and as far as I'm concerned I hope a lot of people go out of business.

Jagow: Well maybe next time Chris you can share some strong opinions with us

Farrell: OK, I'll, I know that's sort of one of your demands. I'll try and live up to it.

Jagow: All right Chris thanks for joining us.

Farrell: Thank you.

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