Will Renting Foreclosures Stabilize the Housing Market?

 

 

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.

 

I 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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