Will Renting Foreclosures Stabilize the Housing Market?

By
Services for Real Estate Pros with TheHousingGuru.com

 

 

Will renting foreclosures stabilize the housing market?  I don’t think so—and here’s why:

 

 

 ●  Although the Administration is currently seeking input on its plan to offer government-owned foreclosures for sale in bulk to large investor groups, it seems unlikely that the plan will boost home prices as suggested.  Furthermore, bulk sales will lower the return to taxpayers already on the hook for billions in losses at Fannie/Freddie and FHA.

 

●  Increasing the number of rentals in a neighborhood often results in lower average prices for existing owners and less neighborhood stability.   

 

●  Discounting foreclosures in bulk would further lower neighborhood values, which could place existing homeowners at risk of being “underwater,” increasing the likelihood of additional defaults. 

 

●  Investors buying large groups of foreclosures will be looking to minimize their overhead.  It’s unlikely they will maintain the homes to the degree that owners would.  And while the FHFA has indicated that proposals for property management will be a factor in approving such deals, the bureaucracy is notoriously lax in providing proper oversight of any of its programs.

 

●  The opportunities for fraud and abuse will undermine any benefit, with taxpayers and neighborhoods becoming the ultimate losers.

 

home for rentI do appreciate efforts to address the housing market and foreclosure problem, but the programs implemented thus far have all fallen far short of estimates.  And while I agree that an innovative approach is needed, I’d prefer one with more promise.  The American homeowner is suffering the effects of bad government policy combined with crony capitalism to the extreme.  It seems to me the first step in stabilizing housing is to help those homeowners capable of remaining in their homes, an approach that has yet to be seriously attempted.  Then, by offering quick closings on short sales, an improved foreclosure process, financing options such as rent to own and forgivable down-payment assistance combined with realistic loan underwriting, we might begin to achieve stabilization.  

 
 

Finally, regardless of the government’s intentions, I doubt there will be sufficient numbers of homes in this program to have a significant positive impact on housing.  The most notable result may be a lowering of home values in those areas most affected by the plan and increased losses for Fannie Mae, Freddie Mac and the FHA.  In the end, politics may be the chief factor that keeps the U.S. floundering in a housing morass for another decade. 

 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Susan Kessler 08/16/2011 04:04 AM
  2. Scott Saults 08/16/2011 11:54 AM
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Ambassador
1,731,795
Fred Griffin
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

More Socialism, More Un-Constitutional Adventures by the Obama Administration.

This will be a Destructive Force upon Neighborhoods, Values, Crime Rates, and everything else.

Aug 15, 2011 05:07 PM #16
Rainer
178,256
Rosalie Evans
Meritus Group Real Estate - Sioux Falls, SD
The Evans Group, Sioux Falls, SD Homes For Sale

I also agree that renting foreclosures is not the greatest idea and for all of the reasons that you cite! Your pretty smart like that! :) I also agree that if they would offer rent to own and down payment assistance programs on said foreclosures this whole mess would go away rather quickly. To bad that either  A.)we aren't in charge of the government OR B.) the bankers and government wouldn't take their heads out of their butt! But I digress!

Aug 15, 2011 05:36 PM #17
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

I'm not so quick to say it is a bad idea. If sold in bulk to investors, distressed properties usually need repairs, maintenance, and this could be a way that creates jobs for the housing industry. On the flip side, if it's a government program, there's always a way for the system to be gamed and that means fraud and taxpayer's waste of money.

If they could, I'm sure the banks would love to get in the property management business so they can make more $. If they handle property rentals in the way they handle short sales, we're doomed. I still don't get how to purchase a HUD home, and my office is HUD certified.

Aug 15, 2011 06:37 PM #18
Rainmaker
709,795
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

I agree that what we need are JOBS.  That does NOT mean giving big business a free ride so that they "might" create jobs... That means making sure there are limits to outsourcing - providing carots AND STICKS to ensure that they employ people HERE for decent wages. That includes stopping the madnesss and carnage of pink slips in the PUBLIC SECTOR...that's only exacerbating the problem.  That means making monies available to pave roads, fix schools, repair suspension bridges and rebuild the railroads. And for God's sake let's take our electrical grid into the 21st century.  Yes  - its public money, but if we don't do these things - we won't have much an infrastructure for business to even want to be here.  So spend the money on things that need fixing at home and righties - quit WHINING that its a public job. A job is a job.   Even the Lewis and Clark expedidtion had public funding for God's sake.

Aug 15, 2011 08:18 PM #19
Rainmaker
454,980
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Praful - I've just based my bias on previous government programs.

Fred - Looks that way to me.

Rosalie - The programs developed to date have never been about helping the "folks."

Pamela - I agree that such a plan might work; I just have little confidence that it will be properly administered.

Ruthmarie - I'm still waiting for all those "shovel ready" jobs that never materialized.  I agree that we need to put money there.

Aug 15, 2011 10:48 PM #20
Rainer
302,576
Keith Lawrence
RE/MAX Properties - Mahwah, NJ
ABR, CDPE, SFR, 203K Specialist

The government in the rental business is a disaster waiting to happen.

Put the houses on auction starting a $1 and let it go to the highest bidder.  It works for E-bay.

Aug 16, 2011 01:32 AM #21
Rainmaker
1,239,962
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

John, I'm always leary when the government wants to help us.  It normally costs 1000 times more, is sub-par when completed and often fails in the process.  So, when a new program comes up the first question should be, "What could go wrong?"  A lot!  They've already proven that they are incompetent in the business arena.  Stay out and let those who actually do it for a living take care of things, and stop tinkering!

Aug 16, 2011 01:35 AM #22
Rainmaker
2,258,910
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

A BIG NO!!! the government should stay out of teh rental business. Investors are already buying foreclsoures, fixing them up and either renting or selling to buyers who could not get a mortgage on the house when it needed so much work. Fannie and Freddie are already mis-managing teh sales of their foreclosures by giving listings to very few brokers in each area, they have too many listings and cant devote enough time to them. Often especially here in NH where 1 in particuliar does not return calls, answer questions or update offers made, The govt makes the pricess so long and difficult buyers and their agents dont want to show their homes any more as it is. They also will spend tens of thousand to fix a home and recover half the value in a home sale instead of selling as is. They cant handle teh sales, there is no way they can handle rentals that will need tens of thousands to be made habitable to collect hundreds of dollars of rent. It will be a bigger mess than their current sales policy

Aug 16, 2011 01:39 AM #23
Rainer
205,020
Mark Delgado
houses for rent, Solano County & Glen Cove - Benicia, CA
Benicia and Vallejo, Property Management, rental h
As a property manager, I've seen that most investors are able to approach rentals as a business, which can be good if their business model is to achieve the highest long-term return. In order to achieve the balance between expense (including maintenance) income (including a higher rental rate for a well-maintained property) and avoiding unexpected Capitol expenditures (back to that maintenance thing again) many investors can be counseled into making what is really the best decision. A well-maintained property can often be MORE profitable than a poorly maintained property. To blanketly state that large investors will provide only minimal maintenance is a generalization of the same sort as the government plan you ridicule.
Aug 16, 2011 02:00 AM #24
Rainmaker
273,251
Ron Tarvin
Luxury and New Construction in Katy & Cypress TX - Katy, TX
Broker, Katy, Houston, Cypress 77450,77494,77095

If the government wants to actually HELP this situation, instead of selling in bulk to certain groups of investors (can you read between the lines on WHO will actually be allowed to BUY these properties), they should instead look at their policies concerning HOW these properties are SOLD to individual investors.  Right now the hurdles you jump to do EACH deal are so silly that your average investor can not do too many deals at any given time.  You've got holding and seasoning, you've got limitations in funding (such as in the 203k Model that doesn't allow investors but USED to allow investors when the program was first established) and other issues that make buying and then fixing/selling or leasing the property after the fact just a pain in the rear.

In addition, when these properties are purchased and then turned around and resold, there are issues that keep legitimate buyers out of the homes...


There are MANY ways that this could be addressed but of course, our Government has opted for the one that wastes the most money (selling in bulk!) and has the worst impact (lowering house prices).

Aug 16, 2011 03:37 AM #25
Rainmaker
2,128,946
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

John...why don't they (and didn't they) just reduce the principal amounts and let the homeowner you know the original borrower, the guy who loves the neighborhood, the house and his neighbors just stay there? Why boot him out and cause all this nonsense and sorrow?...John, I can't help but think about the scarecrow who knew to join Dorothy to go see the wizard. She wanted to get home and he knew he needed a brain...Congress should be made to watch this movie and then sing the scarecrow song....

I could wile away the hours
Conferrin' with the flowers
Consultin' with the rain
And my head I'd be scratchin'
While my thoughts were busy hatchin'
If I only had a brain

Aug 16, 2011 04:29 AM #26
Rainmaker
454,980
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Keith - The government never considers logical or simple solutions.

Mike - I agree.

Scott - Yes, a bigger mess.

Mark - What I said was: Investors buying large groups of foreclosures will be looking to minimize their overhead (a reasonable statement). and that, It's unlikely they will maintain the homes to the degree that owners would. (That's not a blanket indictment of ALL investors, just my opinion based upon 40 years in the business. But my criticisms are not so much pointed towards the investors who purchase the homes, but the manner in which the government has chosen to handle the problem. 

Ron - Sadly, I fear you are right.

Richie - I'll forward your suggestion to my contacts in Congress : )




Aug 16, 2011 05:00 AM #27
Rainer
327,126
Donald Reich
Prudential Centennial - New Rochelle, NY

Great post John. Honestly, do we think its a good idea, that a few banks or government agencies control such a large portion of the housing market?

Aug 16, 2011 06:34 AM #28
Rainmaker
454,980
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Donald - We're currently suffering the effects of having Wall St, the big banks and government controlling housing . . . and it's not pretty.

Aug 16, 2011 06:43 AM #29
Rainmaker
621,799
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Thanks for the good read today.  I enjoyed it.

 

Patricia Aulson/ Seacoast NH & ME

Aug 16, 2011 07:03 AM #30
Rainmaker
529,209
Jeff&Grace Safrin
F.C.Tucker 1st Team Real Estate - Valparaiso, IN
SpousesSellingHousesTM

Agreed Donald and BTW squatters already live in some of these homes rent free

 

 

how will renters pay rent if there are no jobs in the town?

 

 

an attempt to put a bandid on a gushing artery

 

Aug 16, 2011 07:06 AM #31
Rainmaker
335,043
Leslie Prest
Leslie Prest, Prest Realty, Sales and Rentals in Payson, AZ - Payson, AZ
Owner, Assoc. Broker, Prest Realty, Payson,

"●  Increasing the number of rentals in a neighborhood often results in lower average prices for existing owners and less neighborhood stability."

Just what we, as property managers, need.

Aug 16, 2011 07:27 AM #32
Rainmaker
454,980
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Patricia - Thanks.

Jeff & Grace - Doesn't seem like a solution to me.

Leslie - None of us need that.

Aug 16, 2011 08:46 AM #33
Anonymous
Anonymous

I have to disagree with you for one reason...  I have short sale customers who need a place to move to and we can't even find enough rentals for all the owners losing their homes.

I guess this might be an opportunity for house swapping if we want to suggest that option. 

BUt you know if you suggest to the investor that the owner is willing to become a tenant, no you have violated the arm's length statement.

We as realtors just can't win on this one.

Aug 17, 2011 03:14 PM #34
Rainmaker
454,980
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Anonymous - I agree that the millions who lose their homes to foreclosure need housing; I just don't have confidence that the government will develop an efficient plan.

Aug 18, 2011 06:24 AM #35
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