The business of turning foreclosed homes into rentals is set to boom.
The practice could be a $100 billion industry this year, according to a report from real estate tracker CoreLogic. That's equivalent to $125 for every Facebook user, the cost of halving global poverty for two years and 250,000 times the salary of the President of the United States, according to The Guardian.
Why is the market for foreclosed properties-turned-rentals poised for a boom? In the aftermath of the housing bust, demand for owning homes has fallen, pushing rents up and home prices down. In response, everyone from big banks to smaller firms are increasingly taking advantage of the disparity by turning foreclosure properties into rental homes.
Bank of America is currently running its own pilot program to rent homes to families that have been foreclosed on, called Mortgage to Lease. In addition, private equity firms and hedge funds are now spending hundreds of millions of investment dollars and racing to buy up foreclosed properties.
In turn, Bank of America and government mortgage giants Fannie Mae and Freddie Mac are responding to the demand, selling off their holdings of foreclosed homes by the hundreds. Just this week, Bank of America announced a bulk offering of 500 foreclosed homes in six different states, following up on an offering of 200 properties late last year.
Meanwhile, Fannie Mae and Freddie Mac have sparked a bidding war when it put up 2,500 of the 200,000 foreclosed homes it currently owns for sale. That's because Wall Street firms say they're interested in buying up the properties and renting them out.The practice of turning foreclosed homes into rentals is becoming so popular that the Federal Reserve issued guidelines earlier this month for banks to use when they're flipping foreclosures into rentals. But the practice also faces criticism: Namely, some are concerned that the very banks and agencies responsible for the housing crisis in the first place will now benefit from their own questionable practices.