Fed Report Suggests Bulk REO-to-Rental Programs

According to a white paper released by the Federal Reserve to key members of Congress, “the decline in house prices and the rise in rents suggest that it might be appropriate in some cases to redeploy foreclosed homes as rental properties.” The Fed appears to support a large-scale REO-to-rental program as a way to tacke the oversupply of vacant, foreclosed homes and thus to prevent property values from falling further. While the market for owner-occupied homes continues to be very weak, the market for rental housing is strengthening.

There are about 60 metropolitan areas that have at least 250 REO properties currently for sale by the GSEs (Fannie and Freddie) and FHA. Atlanta has the most at about 5,000 units. The next-largest inventories are in Chicago; Detroit; Phoenix; Riverside, California; and Los Angeles, each with 2,000-3,000 government-owned REOs for sale.

The FHA released a request for information in August of last year to solicit ideas on ways to sell off groups of properties to investors who will employ an REO-to-rental strategy. The agency is currently reviewing the more than 4,000 responses it received. Meanwhile, the Fed is participating in an interagency group that is considering issues related to the design of a program that would facilitate REO-to-rental conversions.

Read the full Federal Reserve white paper.