The government is investigating new plans to try and limit the number of foreclosures going onto the market in an effort to prevent unsold foreclosed homes damaging values even more – by simply renting them all out instead.
The Wall Street Journal reported that the Obama administration is currently examining the viability of pulling foreclosed homes from the market, at a time when rents are steadily increasing and values continuing to fall. The idea is that lenders would be able to take advantage of increased rents to cover costs while keeping hold of foreclosed properties until real estate markets stabilize again.
Lenders might even be able to make a profit on the eventual sales if renting works out, say experts.
While the talks are only at a conceptual stage, the government realizes there is a pressing need for them to come up with a plan, as distressed home sales continue to be sold at huge discounts, plaguing real estate markets. According to Federal Reserve Chairman Ben Bernanke, taking a number of foreclosed properties off the market “is an idea worth looking into”.
Analysts at the Credit Suisse financial firm estimate that even by just reducing the number of foreclosure sales by Fannie Mae and Freddie Mac to 30,000 a month (they currently sell 50,000 per month) would amount to a one-third reduction in distressed property sales.
Such a move would help to prevent an expected 3% to 5% drop in home values, Credit Suisse estimated.
One of the biggest stumbling blocks to the plan of course, is that renting out foreclosed homes would place the government and mortgage lenders into the unaccustomed role of playing landlords – although this too would perhaps be beneficial as a way of creating jobs, as there would surely become a need for property managers to take control of these new estates.
Alternatively, rather than lenders or the government renting out homes directly, another plan is to encourage investors to buy up foreclosed properties at discounted prices in exchange for agreeing to rent them out rather than try to flip them. Investors could then use the services of property management firms to handle the day-to-day aspects of handling tenants.