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U.S. government wants to rent foreclosed properties
A foreclosure/price reduced sign stands in front of a home for sale on February 11, 2011 in Miami, Fla.
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Kai Ryssdal: The housing market is -- stagnant might be a good word. Depressed might be another that you could apply to prices. Rental prices, meanwhile, are on the rise. So the government is looking at a plan to rent out some of the foreclosed homes it owns through Fannie Mae and Freddie Mac.
Nick Timiraos has the story in the Wall Street Journal today. Welcome to the program.
Nick Timiraos: Thanks for having me.
Ryssdal: So lay it out for us: what is this plan all about?
Timiraos: Well the idea here is that the government is selling through Fannie Mae or Freddie Mac or federal agencies tens of thousands of homes every month through foreclosure. And can we get the government to maybe rent them out instead, so we don't have all these foreclosures coming onto the market, driving prices down.
Ryssdal: Is there a way to know, if you take the distress sales out, how much foreclosures are driving down prices?
Timiraos: Well since the housing crisis began five years ago, all home prices have been going down at roughly the same pace -- distressed and non-distressed. But what we've seen over the last six months is if you take distressed sales out of the equation, the price of non-distressed homes actually has stabilized, but all home prices are looking lower now because of foreclosures. The problem is, if you have somebody who's willing to buy your house for $200,000 but there's a foreclosure on the block that just sold for $175,000, an appraiser is going to say well, your house is only worth $175,000. And that can blow up the deal, because the lender's not going to give a loan on a house for $200,000; they're going to say, well, it really needs to be $175,000. That's the problem that foreclosures are creating for housing markets right now.
Ryssdal: OK, but riddle me this: doesn't this, if we do this on a large scale -- because Fannie Mae and Freddie Mac, as you write today, own hundreds of thousands of homes -- doesn't that effectively turn the U.S. government into a landlord?
Timiraos: It would, and that's something that I think government policymakers are very keen to avoid. So one of the things that they're looking at is, is there a way we can do this without actually having to stand in the middle and be the landlord? So you have federal agencies that are very bad at selling the homes anyway, and the question is, could you sell them to investors rather than having to do the regular kind of listings and selling them one at a time? Sell them all to investors and then investors would have to agree to rent the homes as a condition of that sale. And so they would rent them out for a number of years, you can peg it to market conditions before they could sell. And that way, you're getting the benefit of getting these houses off the market, but the government doesn't have to stand there and fix plumbing issues or repair leaking roofs and things that landlords have to do.
Ryssdal: You're cautious in your article today, saying it's just a plan and people are talking about it. Does it have enough support to maybe go someplace?
Timiraos: I think in the next few months we'll get a better idea of whether this can actually move. I think it sounds great on paper -- people like it on paper -- but as we've learned through this housing crisis, a lot of the things that the government will do whether it's mortgage modifications or tax credits or refinancing underwater borrowers, these plans sound great on paper. But when you actually do them, they can get fouled up pretty quickly. So I think we'll see a pile-up project later this year, do a few thousand homes, and if the concept can translate, then they will scale it up.
Ryssdal: Nick Timiraos from the Wall Street Journal. Nick, thanks a lot.
Timiraos: Thanks Kai for having me.
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Their is an old saying for all things that matter KISS keep it simple stupids. We are all stupid at something and it takes a simple thinker sometimes to see through the tress. Fannie Mae and the likes that are the investors need one thing more than renters and to become landlords with all the responsibility it takes to assume that role and that is money, or positive cash flow. The people need more than a crappy rental deal for housing, they want the American Dream! A lease to own program that gives the homeowner three years in which to deed in lieu the home back to the investor and clean up their credit and refi the home with a new loan at market value. Now clean up the deal with a contract clause that demands the occupant to keep a home warranty from beginning of lease contract and going into the financing stage of re-ownership. I would gladly keep my homeowners insurance and a home warranty to keep from moving while I clean up my credit since my bankruptcy. Bankruptcy was our only option to save ourselves financially from this mess. We still live in our Fannie Mae home and keep the insurance and keep up the property because we not bums and we are hopeful that our ideas are worthy of practice. A home warranty cost as little as 35.00 a month a small price to pay to keep your investment maintained, and insurance is about the same. Take these cost off of fair lease value and you have two parties that are 100% invested in this crap market which will in turn create more permanent home ownership and get real estate values and market problems fixing themselves while providing safer neighborhoods instead of shelled out ones where drug dealing gangs move in and set up shop like is happening in many cities. Everybody needs a stake in the game to stay in it and this is it, and it will work more efficiently than many will like to believe. This so easy a lawyer can do it without the help of a secretary that could do it even better. Two simple costs built into the contract and neighborhoods across the country will come back instead of decaying into hoods.
We can see how this really plays out. The government sells the properties to the investors. The investors offer the houses at inflated rental prices. Nothing moves. They reduce the prices as more and more rentals come on the market. The market starts getting flooded with rentals. Prices of all rentals drop. People paying high rents move to lower cost rental properties. The investor that had the rental in which their tenant just left for a lower priced rental ends up foreclosed because he can't accept a lower rental price because he is already underwater and has no choice but to walk away. This results in probably a doubling of the banks assets of foreclosed properties. Anyone with half a brain can see that is what will play out.
Worst idea ever. The original sin was getting Washinton involved in mortagages, but that will be a topic for another time. For all this talk about making housing affordable, I can't believe the imagination they're employing to try to prop up bubble prices. About half the people in the country own their home, and the other half rent. Why is the government putting their thumb on the side of scale of owners and supporting high home prices. We had an unprecedented inflation of home prices in the 2000's, it's only natural for prices to come back down to earth. Foreclosures don't cause home value reductions, they mearly reveal them. Just because some people don't like the price of one asset class doesn't mean Washington should step in to pinch hit for one team againt another. With more affordable home prices, less people would be forced to rent, and rental prices would moderate the same as home prices.
Why doesn't the government allow people to rent to own. This allows people get into home ownership, who otherwise could not afford to buy a house. Terms could be basic, they would need to live in the house for 5 years, before they could receive any equity, preventing profiteering or flipping homes. Let renters take pride in their own home, rather than having a few people owning a lot of homes for investment purposes.
If the government had possibly bailed out the homeowners before our present crisis; (instead of the Banks & Wall Street) maybe we would have survived our present situation. Not to mention the banks would have still have been paid off & most people would have never lost their homes.
A better idea? Shared equity. Fannie and Freddie DON'T sell the houses to investors but instead lease them to renters who would gain 50% of the house appreciation (minus costs of improvements) at the end of the lease.
This will give people a way back into homes they can afford and motivate them to maintain the home.
Isn’t it assuming a lot to imagine that investors are going to be better landlords than a government agency? Our trust in Wall Street and “investors,†after all, is what got us into this mess. It seems much more likely that such a private/public venture would serve the interests of investors and the toxic assets of Fannie and Freddie more than it would the mortgage market, or the rental market, for that matter. Affordability is the bottom line, so there is no point in dreaming up schemes to keep prices higher than they would be without government intervention. Maybe the better plan would be to get investors right out of the picture, and rent to individuals, at well below market rates, who would agree to maintain the properties as an owner would. This would address the affordability problem, as well as encourage banks (who would be taking huge losses) to loan to individual (rather than speculative) investors in the future. It would save deteriorating neighborhoods, and shift the mortgage market from one of speculative investor frenzy to one that addresses actual human need. Furthermore, these gigantic corporate-developed neighborhoods that have sprouted up over the last twenty years would be relegated to history, and more attractive homes with character and individuality would eventually take their place. In other words: employ government to redirect the whole market toward individual ownership and maintenance, rather than corporate development, speculative investment, and risk distribution on Wall Street via Fannie Mae and Freddie Mac.
The federal government is already operating a program that would work perfectly for the Fannie and Freddie homes so they wouldn't be foreclosed. It is called a "public/private venture" and the military uses it to manage military housing. Right now my husband and I live in military housing in San Diego, but it is completely operated and managed by a private company, Lincoln, and it works out great. This program would be the perfect option for the Fannie and Freddie homes, and I think Mr. Timiraos should look into it and how it is run and managed. Of course, he could always contact me about how it works as well.
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