The Obama administration, in conjunction with federal regulators and led by the overseer of Fannie Mae and Freddie Mac, are very close to announcing a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.
There are currently about a quarter of a million foreclosed properties on the books of Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) and millions more are coming.
The foreclosure processing delays of last year created a mammoth backlog of properties yet to be processed, which are just now being re-started. One of the initiatives of this program is for the federal government to be in the position to mitigate and manage any new wave of foreclosures, sources say. Late stage delinquencies still in the pipeline number close to two million, according to a new report from Lender Processing Services. Foreclosure starts outnumber foreclosure sales by two to one, and, "the trend toward fewer loans becoming delinquent, which dominated 2010 and the first quarter of 2011, appears to have halted," according to LPS.
Story: As home prices fall, more borrowers walk away
Knowing this all too well, the Treasury Department, Federal Reserve, HUD, FDIC, Fannie Mae and Freddie Mac, with their conservator, the Federal Housing Finance Agency (FHFA) at the helm, are engaged in a collaborative effort to face this new wave of foreclosures head on and figure out a way to keep these properties from sitting heavily on the books of the government and sitting empty in the nation's neighborhoods.
As the Federal Reserve alluded to in its white paper on housing last week, "a government-facilitated REO-to-rental program has the potential to help the housing market and improve loss recoveries on reo portfolios." REO's (Real Estate Owned) are bank-owned properties, or, in this case, properties owned by the GSE's and the FHA. Three Fed governors pushed for similar plans in speeches last week as well.
A pilot sales program will be starting in the very near future, according to administration officials. They are 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.
"I think there is a fair amount of money in the wings waiting to buy, investors doing cash raises to buy properties on a large scale," says Laurie Goodman of Amherst Securities. "But that means they have to build out a rental organization; it means they build out a management company because if you're accumulating a hundred homes in Dallas that's very different than running a multi-family building."
A number of institutional investors have shown appetite and interest in bulk REO deals, according to officials, but the plan has to incorporate ways to help facilitate financing. That has been one of the biggest roadblocks to deals already in the works between hedge funds and the major banks. Sources close to these private bank negotiations say there is plenty of cash to buy properties, but building out a management structure for the rentals is pricey, and some investors are finding the math doesn't add up to make it worth their while.
Larger investors want to be able to get real scale in any government program, in the range of 50, 100, 500 properties per deal, or one billion plus in assets, say officials close to the plan. That's why the government is looking to test a combination of different approaches. Fannie Mae did a fifty million dollar sale last June, but that was on the small side. Officials are evaluating at what larger asset sales beyond that would look like.
“We expect several pilots that will involve both local investors and institutional investors. The goal here is to reduce supply by converting foreclosed homes into rental units,” says Jaret Seiberg of Guggenheim Securities. “Less supply – even less fear about a flood of foreclosed homes hitting the market – could stabilize [home] prices.”
While much of this program will focus on local areas of distress, largely in the sand states, officials say they are looking at where the assets are today but are really more focused on where all the foreclosures will be in the future. It's not about the stock of foreclosures currently, it's about the flow of them over time and alternative ways to manage that flow.
Officials say they want to bring back private capital and help support rental opportunities for households, particularly when rent rates are up at the same time home prices are down.
Comments
How do you get one of these Government Jobs? Do you have to take some sort of stupid test? Has anyone thought what this huge "wave" of rentals would do to the current rental market? Vacancy rates are at historic lows across the country, you throw this "wave" at it and what happens? Rental prices go way down and those current rental owners can't cover their expenses and they go into default! Do these idiots take some sort of course on how to destroy the country or are they just born that way? UGH!!!!!
Kent thanks for this Article, Great Post !!!!!! See link below dated December 12, 2011 by Bank Of America renting forclosed homes to homeowners.
http://aol.it/rOF7uS
Who are these people? Really, where do they come up with this stuff and why do mindless drones go along for the ride. Do people realize what billions of dollars in rentals would do the real estate market? Lets think this through for a moment... the single family market has been decimated by foreclosures. In my area (NY) prices are down below pre-bubble prices. But the silver lining is vacancy factors have remained low and investors have been able to purchase rentals and receive good returns on investment. Now the Government wants to flood the rental market, driving down the amount of money one can ask for a rental and therefore take all the existing rentals and put them in a negative cash flow position. Then what, do you think investors are going to hang on to properties with negative cash flow? We're going to repeat the entire debacle all over again!
didnt the FED, states and county governments got into housing before and made those area ghettos and called them PUBLIC HOUSING? If we think HUD and FANNIE MAE are operating badly; imagine if they get into renting homes? another band aid on an open wound; get our tax dollars are of public housing; let the market fix itself;; remember the RTC? Investors promised to meet certain criteria and didnt and those homes were flipped; thus bringing property values down again;; we need a housing czar; too many people got into homes they still cant afford; so let them go to foreclosure and lets police our housing system; not the government
To Jesse's credit, he predicted this would happen more then a year or two ago. It's all part of a plan started by FDR right after WWII. Look up the "2nd Bill of Rights" and you'll see where this Country is headed. And this could be the end of our profession as we know it now simply because one of our basic constitutional rights is being slowly changed right before our eyes..... The right to own personal property.
And we are letting it happen!
Trying not to make a political statement but WE ALL need to know who we are voting for in the coming elections. Not what they promise to do if they win but what their past tells us what they are doing to do in the future and who's supporting them now. Do your own research and educate yourself before you vote or you'll fall for a fancy YouTube video that tells you what you want to hear!