White House Considering Turning 250,000 Foreclosed Homes Into Rentals

WASHINGTON — The Obama administration may turn thousands of government-owned foreclosures into rental properties to help boost falling home prices.

The Federal Housing Finance Agency said Wednesday it is seeking input from investors on how to rent homes owned by government-controlled mortgage companies Fannie Mae and Freddie Mac and the Federal Housing Administration.

The U.S. government rescued Fannie and Freddie in September 2008 and has funded them since the financial crisis. The mortgage giants own or guarantee about half of the nation's mortgages and nearly all new mortgages.

At the end of last month, the government owned roughly 248,000 foreclosed homes, officials said. About 70,000 of those are listed for sale. But officials expect the number of foreclosures to soar in the coming months.

Many foreclosures have been stalled so attorneys general and federal regulators can investigate whether lenders cut corners and improperly handled thousands of cases. Once a settlement is finalized, foreclosures are expected to pick up again and further depress home prices.

Converting the homes into rentals may reduce "credit losses and help stabilize neighborhoods and home values," said Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

Homes in foreclosure sell at a 20 percent discount on average, which can hurt prices of surrounding homes.

It also might meet the growing demand for rentals. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard's Joint Center for Housing Studies and The Associated Press.

A federal "request for information" released Wednesday included an option for previous homeowners to rent out the homes or for current renters to lease to own. Private investors could also be allowed to manage the rental properties.

Officials are also mulling whether to only implement the program in areas hit hardest by foreclosures and in those with high demand for rental housing, such as Arizona and Florida.

The homes include single-family homes and condominiums. The deadline for responses is Sept. 15.

Comments

[fortressfountain]

10:09 PM on 09/21/2011

The government wants to get into the rental business? Just give the homes to the people to fix up.
The government worries about how to enrich their corporate buddies and cronies and after there is nothing for the people and the money has been squandered.

[BMcCord]

03:01 PM on 09/17/2011

I see many comments and opinions re this issue but very few that are related to the actual fact. So far this is all that's actually been said:
"The Federal Housing Finance Agency said Wednesday it is seeking input from investors on how to rent homes owned by government-controlled mortgage companies Fannie Mae and Freddie Mac and the Federal Housing Administration".
Should we really be compaining about a Government Agency seeking imput from affected people and organizations outside of Government?
Personally I think this is an attempt to think creatively about a complex problem that must be solved somehow. I look forward to seeing more details on this and the many other economic problems we currently face.

[Kenz300]

03:50 PM on 08/27/2011

Banks need to do their jobs and process offers on short sales. I have heard of buyers waiting 6 months or more to hear from a bank if the offer was accepted. That is too long. It is just dragging out this problem. Banks need to move the homes to new qualified buyers and let those people that are having problems out from under their debt.

The economy will not get better until the housing market starts to improve. Banks need to quit slow walking the process and help move these homes.

[how now]

01:36 PM on 08/23/2011

More and more homes will be turned into rentals or bulldozed to the ground. This will be the future for Americans of all ages. More and more cannot sell for the price of their 50% ltv of 10 years ago. All sales, short sales. Previous owners will not buy ever again or borrow from any source ever again. No demand from first time buyers. Don't want to buy at any price and most cannot buy at any price - too much other debt - no job security. Homes were more "affordable" at the peak then they are today. Just have to wonder who our landlords will be - global corporate landlords or govt. landlords? All those old fashioned landlord investors who sat on the sidelines and cheered as homeowners got kicked to the curb (they posted everywhere as "angry renters") won't be able to compete with the big guys.

[pa7192]

03:32 PM on 08/21/2011

That is just GREAT!!! Now the Obama administration is going to flood the market with cheap rentals to Sc**w over all of the landlords. Whats next?? I never thought that the government would be competing with me. Is this still America? I'm not so sure anymore!

[Martha Fair]

08:00 AM on 08/20/2011

Why not let renters improve the property with their own labor and pay them directly for it? Why should banks get the money since they are the ones that got us in to this mess in the first place? Once the renters have shown they are able to pay the rent on time and keep the property up (say for a 2 year trial), they should be able to purchase said home using the labor as a down payment.

[suem6575]

07:44 PM on 08/15/2011

I cannot imagine the Government in the rental business--they did such a wretched job in the auto business--why on earth would they try something like this? Horrible!!!!!

[Martha Fair]

08:01 AM on 08/20/2011

The auto business was salvaged because of the government. WTH are you talking about?

[alloftis]

05:48 PM on 08/15/2011

Sounds good if it works, but be damn sure the probability of turning these things into rentals will work first. If it can stabiize home prices and clean up neighborhoods fine, but a lot of these homes are going to need work after being vandalized and stripped by previous owners.

[localwonk]

04:18 AM on 08/14/2011

All I can see is that it will be yet another mess for the free market to finally shake out and that most violently. The best thing to do is put these foreclosures up for sale at once and let the free market sort it out. Yes, it will cause home prices to deeply depress. Yes, the drop in prices will put other borrowers under water and that will lead others to go into short-sales and ultimately foreclose but the free market will be driving the property prices.

The alternative is to allow the government to prolong the problem allowing the number of foreclosure inventory to increase until the government can no longer deal with the backlog and finally relents and lests the homes go up for sale at which time the market do the inevitable shake up. Either way it's going to happen but the longer the government waits the worse it will be. As long as the government waits, the whole real estate market is an false illusion that despite depressed property prices is still inflated above market value. Every purchaser of a home right now is potentially getting set up for failure due to their home prices being higher than they should be while this huge inventory of foreclosures awaits entering the market.

As usual, the innocents will pay for this unconstitutional meddling in the housing market.

[Tara Hunkoff]

11:20 AM on 08/13/2011

The government only has 28% of its approximately 248,000 homes up for sale, which means: 1) they have cloudy titles 2) they can't sell, except at an underwater price, which means creating more debt in an election year 3) putting all those homes on the market at once would crash prices and bring HUGE political heat from the National Association of Realtors and other industry players. Remember the Houston crash?

Hey, put an RFI on the street! "If we're gonna crash, at least throw some consulting money at our real estate cronies as we spiral into the ground!"

Smart private investors sold off five years ago and invested elsewhere.

Rentals have a gigantic PITA Factor. A 5% annual positive flow from a rental is exceptional. The real money is made upon selling the house, if you aren't forced to sell in a slump. I doubt Uncle Sam could time a 3-minute egg, let alone the sale of 248,000 homes.

Here's hoping the government doesn't get any more involved than they already are, what with all that bad paper they're holding.

As "Realtors Are Liars" has correctly pointed out, the depreciation expense of a rental is good for an investor, but it's poison to an ordinary owner. Ditto for the point about the housing supply: it hasn't changed one bit. Those homes will still be for sale, regardless of whether they are being temporarily rented or not.

[Realtors Are Liars]

12:02 AM on 08/14/2011

As "Realtors Are Liars" has correctly pointed out, the depreciati­on expense of a rental is good for an investor, but it's poison to an ordinary owner. Ditto for the point about the housing supply: it hasn't changed one bit. Those homes will still be for sale, regardless of whether they are being temporaril­y rented or not.
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Thank you.


People don't understand that housing depreciates, ALWAYS.

[valboski]

08:40 AM on 08/13/2011

what will those houses be like after rental; will the government (you and I) then pay to paint, repair and stage them to sell? More government is never the answer...they are dumber than a box of rocks

[JerryAguy]

07:02 AM on 08/13/2011

Another great Obama plan? rent $900, administrative and oversight $3700 and actual maintenance $1500. So the American taxpayer should only eat $4300 a month for another Obama vote, makes perfect sense.

[JerryAguy]

11:34 AM on 08/13/2011

Will this be another bargain like cash for clunkers? Maybe we can make some jobs as well that pay $35,000 but cost taxpayers $500,000.

[Louise Smith]

08:02 PM on 08/12/2011

Why not rent them??
EXCEPT PLEASE don't pattern it after section 8, which is the worse program ever invented for helping the needy.
Most of the people on this program are con artists. They spend 35 dollars a month on rent, The PROPERT OWNER get (steal)1000.00+ from the goverement.
Section 8er gets to drive the best cars, eat the best food, food stamps can buy and wouldn't work if you bought the job to their house.

[Jim Fay]

07:19 PM on 08/12/2011

My first guess is that this will drive up the price of existing homes for sale. By shrinking the pool of available homes, it merely becomes a supply/demand equation. Turning them into rentals may provide income flow but could hurt the banks on the other end when people need to borrow even more money to try to buy one of the remaining homes for sale. With fewer homes for sale to choose from, many of these people could be forced into becoming renters.

[Realtors Are Liars]

10:18 AM on 08/13/2011

It doesn't change the supply at all. The types of supply will be jiggered but no impact on supply at all. It's merely a slight bottleneck no different than the rental-to-condo conversions we saw during the bubble years.

Don't fret about supply. There are 25 MILLION empty excess housing units in the US and that number will grow dramatically over the next 20 years.

[petersjlynn]

06:04 PM on 08/12/2011

I predicted this a year ago. Why are they doing this? Not to "boost falling home prices." Quite the contrary. Just look at the entire scheme of things. Fannie Mae and Freddie Mac "own or guarantee about half of the nation's mortgages and nearly all new mortgages." Most mortgages are owned by the federal Government. FHA, VA - prime examples. If you are laid off from your job and collecting unemployment, FHA will NOT allow your loan to be modified, because unemployment compensation is not considered income. Been there, done that!

Obama and his Administration have been talking about eliminating mortgage interest write-offs. In the 70's Carter's clan eliminated credit card interest along with car loan interest as write-offs. Once Obama abolishes the mortgage write-off, the attraction of home ownership becomes seriously reduced! More people will walk away from their houses.

If Obama came out and told the truth right now, he'd get backlash from all angles of the political arena. Your house, my home and all others, foreclosed or defaulted, are soon to become.....Government Housing.