Administration Unveils REO Rental Proposals

Mortgage News

Mortgage Daily Staff

                                                 August 10, 2011

The Barack Obama administration is seeking public comment on using repossessed homes as rental properties. Among proposals on the table are lease-to-own and borrower-to-renter programs.

Comment is sought on how to reduce the real-estate-owned inventories held by Fannie Mae, Freddie Mac and the Federal Housing Administration in the most cost-effective manner. A joint announcement from the Department of Housing and Urban Development, the Department of the Treasury and the Federal Housing Finance Agency outlined the proposal and a Request for Information.

The comments should address needed property repairs and rehabilitation. They should also factor in local conditions, help stabilize neighborhoods and suggest analytic approaches for strategies to dispose of the REOs — including sale, rental or demolition.

The agencies indicated that “respondents may best address these objectives through REO-to-rental structures.” One strategy would have former borrowers become renters, while another would utilize a rent-to-own model for current tenants.

Among other potential strategies outlined was the use of REO assets to support markets with a strong demand for rental units and bloated foreclosure inventories.

The administration also suggested that a mechanism be established for private owners of REO inventory to eventually participate in the transactions.

“While the enterprises will continue to market individual REO properties for sale, FHFA and the enterprises seek input on possible pooling of REO properties in situations where such pooling, combined with private management, may reduce enterprise credit losses and help stabilize neighborhoods and home values,” Acting FHFA Director Edward J. DeMarco said in the news release.

Affordable housing could also benefit from proposed strategies.

Mortgage Daily Staff

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