One idea to deal with the glut of foreclosed homes could be to create pools… (Joshua Lott, Bloomberg )
Reporting from Washington and Los Angeles — With the real estate market continuing to drag down the economy, federal officials are seeking ideas from investors and others about ways to rent some of the nearly 250,000 foreclosed homes owned by government-controlled entities such as Fannie Mae.
The decision to solicit public comment came as the pace of foreclosures nationwide declined again last month, according to RealtyTrac Inc. in Irvine. The 4% drop in foreclosure filings from June, and 35% from a year earlier, was the 10th straight monthly decline.
Mortgage modification efforts and delays in processing foreclosure paperwork have eased the foreclosure problem somewhat, but the number of people losing their homes is expected to remain high for months, the firm said Wednesday.
A severe oversupply of homes on the market — many of them foreclosures — is pushing prices down. The Obama administration has been struggling to solve the problem largely through programs designed to prevent foreclosures.
But initiatives such as the Home Affordable Modification Program have failed to stem the tide of foreclosures, and about 248,000 single-family homes now are the property of mortgage financing giants Fannie Mae and Freddie Mac and the Federal Housing Administration.
Federal officials said Wednesday that they're trying to figure out ways to sell those homes while also boosting the stock of rental housing for people who no longer can afford to own.
"Millions of families nationwide have seen their home values impacted as their neighbors' homes fall into foreclosure or become abandoned," Housing and Urban Development Secretary Shaun Donovan said. "At the same time … we have to find and promote new ways to alleviate the strain on the affordable rental market."
Officials from the administration and the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said they would accept ideas in a "request for information process" through Sept. 15. Details are available on their websites, http://www.hud.gov and http://www.fhfa.gov.
A more formal request for specific proposals could follow, meaning it would be months before any programs are launched.
Although the initiative is long overdue, it's important to take the time to get it right, said John Taylor, president of the National Community Reinvestment Coalition, an association of organizations that promotes access to affordable housing.
"Asking for this input is a good sign because they're looking to do something other than say, 'OK, this property is available and who's the highest bidder,' " Taylor said. "I think they recognized that's not going to work."
Strategies would be tailored to the needs of different areas of the country, federal officials said.
One idea could be to create pools of foreclosed properties that would be sold in bulk to private investors, who would then rent them out. Such a plan would lower the supply of homes on the market. But it also could lock in losses on the bailouts of Fannie and Freddie, which have needed $169 billion in taxpayer money so far to stay afloat.
Another idea could be for investors to buy homes and then make them available on a rent-to-own basis.
Finding occupants for foreclosed homes is crucial to solving the housing problems, said Daniel Aguilar, managing partner at McKinley Capital Partners, an Oakland real estate investment company that uses private money to buy foreclosed properties and rent them.
"You let a house sit … the appliances start breaking down, the plumbing starts going bad, especially the toilets," he said. "If a house sits too long, the maintenance costs to clean it back up go through the roof."
The government must be sure not to flood the market with distressed properties, as they can drag prices down, Aguilar said.
"The worst thing they could do is flood the market with houses all of a sudden," Aguilar said. "The banks have been very careful not to do that. If you put an oversupply of homes on the market, it destroys that particular market."
Many investor groups focus on buying foreclosed homes, either quickly selling them or renting them out until they appreciate in value.
Doing that on a broad scale, though, is difficult because of the wide variety of properties that can be involved, said Dennis Cisterna, director of the Los Angeles office of Carlton Group, a real estate investment bank.
"It is very hard for a potential buyer to underwrite a purchase," he said. "You have to take the good, the bad and the ugly."
Government officials said they were seeking longer-term proposals that would supplement existing programs designed to stabilize the housing market. Among them is the administration's Hardest Hit Fund, which tries to help homeowners avoid foreclosures in California and other states where the housing market is the worst.
Sen. Jack Reed (D-R.I.) has been pushing federal officials to convert vacant foreclosed homes into affordable, energy-efficient rental housing. The energy-efficiency work would create jobs for out-of-work people, especially in areas hit hard by the collapse of the real estate market.
Reed said he was pleased that government agencies "have finally recognized the urgent need to be proactive and creative in pulling the housing market out of the foreclosure tailspin."
Taylor also said he's encouraged that federal officials are trying to be creative. He suggested a requirement that local workers be hired to do renovations needed to sell some foreclosed homes.