A New Deal for the American Renter: Solving the Eviction Crisis

With the Eviction Crisis looming and millions of Americans facing the threat of homelessness, many Americans are left wondering, “will the government bail out the people?” The US Government has spent billions of dollars in the last two decades doing just that for Wall Street. Banks and investment firms that defrauded the public and blew up the economy walked away with money to spare. So, will rent-strapped Americans receive the same treatment, or will they be left to fend for themselves?

To best answer this question, let’s take a brief look back at the history of US government intervention during economic crises. We start with the Great Depression. This economic disaster saw home mortgage delinquency rates exceed 50 percent and remain delinquent for more than fifteen months. The consequences were catastrophic. One way the government sought to alleviate this stress was through the Home Owners Loan Corporation (HOLC). This was the agency created to solve the housing crisis under the New Deal. The crafting of this section of the New Deal was incredible in and of itself. Multiple opposing factions had to be brought to the bargaining table, and each faction had very different needs. First, the lenders had mountains of defaulted loans. Included in those loans was the banks’ remaining capital, cash they needed to keep their doors open. Included in those defaulted loans were years of back taxes that local communities needed to keep their doors open and to provide much-needed services. Second, the homeowners were experiencing the great and terrible Depression and all its intertwined consequences, including the lack of funds to make payments. From where would come the needed funds to fix this tragic problem.

The agencies were granted the authority to issue tax-exempt and government-guaranteed bonds, then sold those bonds into the marketplace. The critical aspect of crafting this legislation encompassed the need to include all the parties to ensure all were made whole, and the plan worked beautifully.

This process embraced the homeowner by marrying the homeowner to the activity of paying off the old loan in full, along with delinquent taxes, and then replacing the old debt with a new mortgage designed to be repaid over an extended period. This process allowed the homeowner to maintain ownership of the home and pay off the defaulted debt in full. In the end, the government did not sustain any losses, and over 80 percent of those defaulted homeowners retained their homes and paid off their mortgages.

In contrast, we turn to the Great Recession of 2008.  The delinquency rates on home mortgages only hit about 4.2 percent. However, millions of homeowners lost their homes, and the Bush administration turned the 2008 bailout decision-making authority over to the likes of Goldman Sachs. According to a March 7, 2019 article in National Review, by the time the Federal Reserve ended its 2008 buying spree to stabilize the markets, the bond purchases had reached $4.5 trillion by October 2014. It sits at $8.5 trillion now, the effect of a 131 percent increase.3 In the end, we chose banks over people, hoping that the banks would ensure a stable economy and the people would eventually recover.

Once again, the American people face a devastating economic crisis, this time brought about by a global pandemic. So, will we choose the cooperative, inclusive bargaining of Roosevelt’s New Deal Era where the needs of all parties are considered, or we will instead select a one-sided solution that benefits only creditors and landlords?

The Choice is ours.

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James M. Nelson