Realtors say REO-rental plan largely unnecessary

Housing markets are complex and varied, and a government pilot program to turn bank-owned properties into rentals could be disruptive and counterproductive in some markets, according to the National Association of Realtors.

NAR urges the Federal Housing Finance Agency (FHFA) to proceed cautiously with its Real Estate-Owned (REO) Initiative pilot program to sell homes repossessed by government agencies to private investors to convert into rental units.

“Realtors support efforts to reduce the high inventories of foreclosures, but all real estate is local and we are concerned that REO-to-rental programs are not necessary in some areas and could even hinder the recovery,” NAR President Moe Veissi said. “In many communities REOs are already moving well through the normal processes, so we urge caution when proceeding with a rental program.”

According to a recent NAR analysis, while the overall visible inventory of foreclosures has been trending down across the country, there is a noticeable difference in foreclosure inventories in states that require judicial proceedings to foreclose on a property versus inventories in states that do not require the court’s intervention.

Foreclosure inventories in judicial states are currently 2.5 times higher than non-judicial states. In addition, the disposition of foreclosure inventories is considerably faster in non-judicial states, where foreclosure sales rates are four times higher than in judicial states.

“Inventories of condos and single-family homes for sale continuously fell last year, suggesting that there is no significant oversupply of visible foreclosure inventory in the market,” said Lawrence Yun, NAR’s chief economist. “Even the shadow inventories of distressed homes have fallen, though they remain elevated and are an ongoing concern. The government REO-to-rental plan could work in areas where buyers are not quickly absorbing the shadow inventory.”

To prevent further increases in foreclosure inventory, NAR has repeatedly called for improved lending to creditworthy homebuyers and have urged lenders to make more loan modifications, mortgage refinancings, and short sales, which will help stabilize struggling housing markets.

“While REO-to-rental programs could be successful in a few communities, we believe that doing more to ensure mortgage availability for qualified home buyers and investors could be even more beneficial in helping absorb excess foreclosure inventories across the country,” Veissi said.

NAR suggested that a national advisory board be created to ensure that current and future REO-to-rental pilot programs truly benefit the local community, minimize taxpayer losses and stabilize home values.