Wall Street firms may rent out Fannie foreclosures

A foreclosure/price reduced sign stands in front of a home for sale in Miami, Fla.

Stacey Vanek Smith: Mortgage finance giant Fannie Mae is selling foreclosed homes in bulk to big investors -- like hedge funds and private equity firms -- who will then rent them out. That according to an article in the Wall Street Journal. Here to talk about this with us about this is The Journal's Nick Timiraos. Nick, good morning.

Nick Timiraos: Good morning, Stacey.

Vanek Smith: So Nick, what is the deal between Fannie Mae and Wall Street investors?

Timiraos: Fannie Mae announced a few months ago that they were going to begin selling in bulk their foreclosed properties to investors who would agree to hold them off the market and rent them out instead. And the idea is that Fannie just has so many foreclosures that are coming under the market and those are what's driving prices down right now. So they felt, well gee, if we could take some of these off the market at a time when rents are going up, we might actually be able to make more money not selling them.

Vanek Smith: Well that's what's in it for Fannie, what is in it for investors?

Timiraos: Well investors like it because the yields right now on single family homes that are rented out are actually really good -- better than what you can get on many different assets right now in the market.

Vanek Smith: Are there any drawbacks to a plan like this? It does seem like there's a lot of extra inventory. It does seem like a really interesting solution.

Timiraos: There certainly are drawbacks. One of those is that if you need to fix a leaky roof or a broken toilet in the middle of the night, the landlord has to do that. Nobody really has kind of done a nationally-based property management before. The costs are relatively unknown and that could determine to a significant degree how much money you make on these kinds of programs.

Vanek Smith: It could be difficult to call a hedge fund at 2 o'clock in the morning when your sink is broken.

Timiraos: Right. I mean the hedge funds are going to have to hire a property management company. And then the other question for Fannie Mae here is can they get more money selling them in bulk. A lot of folks are saying the bulk idea sounds great, but if you sell homes in bulk, you're going to have to give them away at deep discounts to get these investors to buy them, and so you may actually lose more money for Fannie Mae, which is owned by taxpayers.

Vanek Smith: What about homeowners? How do they come out in this situation?

Timiraos: Well a lot of folks say, gee, renters don't take care of their homes. So do we really want to convert neighborhoods in the rental communities? But right now, a lot of these communities already have a huge stock of vacant homes and so just having somebody in the homes could help stabilize some of these communities that are already in transition.

Vanek Smith: Nick Timiraos is a reporter for the Wall Street Journal. Nick, thank you so much.

Timiraos: Thanks for having me, Stacey.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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