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REO to Rental Program: Its Impact on the Housing Market

There has been much talk about the government selling bulk foreclosures which will be converted into rentals. What will this actually mean to the housing market? For the answer to that question, we go directly to the 2/28/2012 Senate testimony of the person making the decisions on this subject: Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency.

Have Any Foreclosures Been Sold in Bulk?

“Yesterday we announced the first transaction in our REO Initiative pilot program. This transaction includes approximately 2,500 properties, divided into 8 sub pools by geographic area.”

Will These Sales Be Limited to Certain Markets?

“The targeted Metropolitan Statistical Areas are likely no surprise to you because they represent hard-hit parts of the country: Las Vegas, Nevada; Phoenix, Arizona; various communities in Florida; Chicago, Illinois; Riverside and Los Angeles, California; and Atlanta, Georgia… Future transactions will also be targeted to these types of markets, where the supply of homes for sale is greater than the demand from homebuyers and where demand for rental housing is strong.

Who Qualifies for These Sales?

Investors will be able to submit applications to demonstrate their financial capacity, relevant market experience, and specific plans for purchasing pools of 6 foreclosed properties with the requirement to rent the purchased properties for a specified number of years.”

Will Most Foreclosures Be Sold This Way?

“Our primary goal will continue to be selling properties first to homebuyers who will use them as their primary residences or non-profits that include homes in mission-oriented activities. We also want to enhance the opportunity for smaller-scale investors to bid on properties, and obtain financing, should initial efforts to market the properties to owner-occupants fail.

Will the Bulk Sales Program Lessen the Pressure on Home Prices?

“The number of properties available for sale by Fannie Mae and Freddie Mac represents only a fraction of the total supply that is depressing home values in certain affected markets.”

Bottom Line

Any plan that reduces the number of foreclosures will help home prices. However, this plan will not have a dramatic impact on the large number of homes that are currently in the foreclosure process.

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4 replies
  1. Jeff
    Jeff says:

    more government intervention is not the answer, in due course we will likely learn that insiders get the deals and the taxpayers get the shaft, put the properties on the market and let the market work!

  2. Mario Bilotas
    Mario Bilotas says:

    An influx of government or corporate owned investment rentals will increase rental inventory and therefore may reduce increasing rental prices that are helping some homeowners stay afloat and preventing foreclosure. Additionally, the geographic location in a major metro area will not be as significant, however based on the success of the program, it may quickly reach local suburbs which offer less multi-unit and multi-family structures, and more stand alone single family units. Depending on the criteria of the rental qualifying process, this may quickly place government owned housing amongst established local neighborhoods. Will the government or corporate do criminal or background checks? Will this turn into a section 8 type process for qualified tenants? Pre-inspections, income based incentives or penalties? How are these being managed and kept up? Although I see how this could make sense for the “property owner” or seller, as income is better than vacancy, I worry that the rental market will reduce, and although less REO inventory would reduce overall inventory, thus stimulate pricing upward, I worry that if not done right, the only people benefiting will be the banks.

  3. Marksky57
    Marksky57 says:

    Just another tax payer program where the gov’t will pick the winners and the losers. Crony capitalism at it’s best. Redistribution of wealth from the people to whom? Reduce the size of gov’t before it reduces you. This program, like most gov’t programs will have it’s blow back or unintended consequences, something you avoid by allowing the actual market place to work without intervention.


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