Realtors Slam Obama Foreclosure-Rental Plan

Bloomberg News
Signs outside of a foreclosed home in Greensboro, N.C., in February.

The National Association of Realtors took a public shot at the Obama administration on Wednesday, criticizing an effort to alleviate some the housing market’s woes by renting out foreclosed properties.

For several months, Obama officials have been studying ways to rent out foreclosures owned by the Federal Housing Administration and government-controlled mortgage giants Fannie Mae and Freddie Mac.

Earlier this month, a U.S. housing regulator invited investors to submit initial applications to qualify to bid on pools of foreclosed properties owned by Fannie Mae that are already rented out under an existing program. It involves six areas: Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and parts of Florida.

However, the Realtors’ top economist, Lawrence Yun, criticized the idea. In a press release, Mr. Yun said that there are plenty of buyers snapping up foreclosures in “nearly all” housing markets around the country. As a result, he said, “a government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”

Mr. Yun dialed back his criticism later in an e-mail. He noted that such a program might make sense in some states like New Jersey and Illinois with a court-run foreclosure process and a large backlog of foreclosures waiting to come on the market.

California, Arizona and Nevada, he wrote, have “no problem with absorption” of foreclosures, and have seen falling numbers of foreclosures on the market.

More details of the foreclosure-rental plan are expected in the coming months, but officials are looking at parts of the country where there is a large overhang of foreclosures and robust demand from renters. The idea is to help home prices stabilize in those markets by eliminating some excess supply. Sales of foreclosures would only be made after properties were on the market for a fixed period of, say, 60 days, providing an opportunity for buyers to purchase those properties – and for real estate agents to earn commissions — before any properties are sold in bulk and turned into rentals.

Many other experts say a foreclosure-rental program will be useful for the broader housing market and economy.

“It is still very much a buyers’ market as house prices continue to decline and inventories remain well above that consistent with a well-functioning housing market,” wrote Mark Zandi, chief economist at Moody’s Analytics, in an e-mail. “There is no better way to help the housing market in the next 12-24 months than a concerted effort to move more (foreclosures) into rentals before these distressed properties hit the for sale market and further depress house prices.”

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