Renters vs. Speculators

This article on CNN.com made me think about the nuances of the mortgage crisis a little harder.

I agree that people who bought houses as speculators should not be helped out of those bad investments by the government. Any investment involves risk, and buying a home as a purely money-making investment with a mortgage structured to guarantee that you'll never actually pay it off should count as one of those risks.

When someone buys a home to live in however, it's more than just an investment. The purpose of buying the home isn't merely to use it as an opportunity to increase capital; it's fulfilling one of the basic human needs: shelter. Many people who bought homes to live in via a poorly structured loan would never have been able to qualify for a loan otherwise. They were the vicitims of predatory lending practices, but before that they were the victims of an economy that places home ownership out of people's grasp.

There's another option for people who can't qualify to buy their own home: rent one! And here's where it gets sticky. What happens when an unscrupulous speculator buys a home as an investment, but then rents it out to someone who is not a speculator, but merely someone renting to fulfill the basic human need of shelter for themselves and their family? When the owner is foreclosed upon because they gave up on paying off the mortgage for a home they don't even live in, what options do the renters have, and what rights should they have?

The renters could buy the home from the bank, but many people rent precisely because they don't have the credit history or income necessary to qualify for a loan from the bank to buy a home.

Here's what I propose:
1st step - The bank must allow the renters to remain in the home after foreclosure for the duration of their lease or 6 months, whichever is greater, while paying the rent specified in their lease directly to the bank, as long as the amount of the rent is greater than or equal to the amount the erstwhile owner was supposed to pay the bank as specified in the original mortgage agreement. There is an understanding that after this time period is over, the lease will not be renewed.
2nd step - If the rent specified in the lease is less than the mortgage payment required of the owner, the bank extends the option to the renters to remain in the home for the duration of their lease or 6 months, whichever is higher, but they must pay to the bank the amount that the owner was supposed to have paid as per their mortgage agreement (non-retroactive: just keep up, they don't have to catch up!). There is an understanding that after this time period is over, the lease will not be renewed.
3rd step - If the renters have lived in the house for at least 1 year and have a perfect history of paying their rent, then once the lease (or 6 months) is up, the bank offers the renters the first chance at buying the property. The sale amount is not to exceed the balance of the mortgage, and the regular credit-score/income requirements should be waived. If the equity already in the house is equal to 15% of the current value of the house, no down payment is required. If not, a down-payment which will bring the equity up to 15% of the current value of the house may be required by the bank at the bank's discretion.
4th step - If the renters have lived in the house for less than 1 year and/or have a less than perfect history of rental payments on the house, then they will also have the first chance at buying the property with a loan structured as above, but the bank may apply the regular credit-score/income requirements to the renters.
5th step - If the renters are unwilling or unable to purchase the house under the above structure, the bank is free to offer the house for sale as it would any other foreclosed property.

Throughout this whole process, the speculative/deadbeat owner is cut out: They have been foreclosed upon and have no further connection to the property. Any investment they made in the property is lost, and their credit history reflects their poor investment choices.

So, what do you think? Is this fair? Is it reasonable for the government to require lending institutions to extend these options to renters?

- "None at all."