White House, Fed Pitching Plans to Sell Foreclosed Properties as Rental Units

According to Obama administration officials, the White house is said to be close to announcing a pilot program to sell government-owned foreclosed properties in bulk to private investors as rental units.

CNBC reported early Monday morning that the White House, in conjunction with federal regulators led by the overseer of Fannie Mae and Freddie Mac, is expected to announce a new program designed to sell government-owned foreclosures to private investors.

According to CNBC’s Diana Olick, there are currently approximately 250,000 foreclosed properties on the books on Fannie, Freddie, and the FHA. Olick wrote that there are perhaps millions more foreclosures to come. For example, late-stage delinquencies still in the pipeline number close to two million, according to a new report from Lender Processing Services.

The proposed program is not new as it has been widely reported since the summer that the administration has been considering ideas for turning GSE and FHA inventory of foreclosed properties into rental units.

CNBC said that officials are hashing out a number of issues, including what the market potential is, what pricing would be, how the government could partner with private investors, and who has the operational experience to manage so many properties.

According to Olick, financing support, rental infrastructure and divestiture scale seem to be among the more complicated issues.

The program appears to have regained momentum after the Federal Reserve released a white paper report last week. The Fed’s report outlined options that Congress should consider to address imbalances in the housing market. One such option was a plan to convert so-called REO (real estate owned) properties to rentals.

In the white paper, the Fed said that the government-facilitated REO-to-rental program could take many forms. It noted that the REO holder could rent the properties directly, sell the properties to a third-party investor who would rent the properties, or enter into a joint venture with such an investor.

According to the Fed, "A government-facilitated REO-to-rental program has the potential to help the housing market and improve loss recoveries on reo portfolios."

Recall also that a total of three Fed governors came in favor of this kind of plan for real estate in speeches just last week.

As for when we can expect such a plan, administration officials told CNBC that a pilot sales program will be starting in the very near future. Olick reports that the administration is working on what the market potential is, what pricing would be, how government can partner with private investors, and who has the operational experience to manage so many properties.

It is encouraging however that many large investors want to get into the game. According to CNBC’s officials close to the administration’s plan, big investors want to “get real scale in any government program, in the range of 50, 100, 500 properties per deal.”

The ultimate goal of the plan is to stabilize the housing market. Currently, buyers know that with a large pool of foreclosed homes still sitting on the books of the banks and the GSE’s, they can be very aggressive with pricing. As such, home prices have remained under pressure.

However, if big buyers can take large chunks of foreclosed homes off of bank books and off the market, the homeowners and the banks stand to benefit.

 

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