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REO-to-rental plan is not necessary in most markets
By Rose Meily, for Silicon Valley Community Newspapers
A government pilot program to turn bank-owned properties into rentals could be disruptive and counterproductive in some markets, according to realty officials. The Federal Housing Finance Agency has announced it will sell 2,490 Fannie Mae-held homes in Chicago, Atlanta, Las Vegas, Los Angeles, Phoenix and a number of Florida cities to private investors.
The National Association of Realtors has urged the FHFA to proceed cautiously with its real estate-owned initiative pilot program to sell homes repossessed by government agencies to private investors to convert into rental units.
“As the nation’s leading advocate for homeownership and housing issues, 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,” said the national group’s president Moe Veissi. “In many communities REOs are already moving well through the normal processes, so we urge caution when proceeding with a rental program.” According to the group’s recent 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 2.5 times higher than in 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, the national group’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.”
California is a non-judicial foreclosure state, and officials say there no slump in demand for homes and therefore no need for the pilot program in the state. Fannie Mae is slated to sell 484 homes in the Los Angeles/Riverside area to private investors.
The California Association of Realtors recently released a statement saying while it recognizes this plan may be beneficial in markets where REO inventory is high, “the association opposes its implementation in California, given low inventory and high demand, even in the state’s hardest hit areas.”
Silicon Valley Association of Realtors president Suzanne Yost said ensuring mortgage availability for qualified home buyers would be a better way of absorbing excess foreclosure inventories across the country. “The strict lending requirements have been a barrier to even creditworthy home buyers. More short sales, loan modifications and refinancing of mortgages would be a better option to help stabilize distressed housing markets,” said Yost.
The national association recommends the creation of a national advisory board to ensure that current and future REO-to-rental pilot programs truly benefit the local community, minimize taxpayer losses and stabilize home values. Realtors are also seeking the participation of local market experts, especially licensed real estate professionals, who have in-depth knowledge of local market conditions.
In addition to more than 400 properties Fannie Mae plans to sell to private investors in the Los Angeles area, 572 properties are scheduled to be sold to investors in Atlanta, 99 in Chicago, 219 in Las Vegas, 341 in Phoenix and 775 in several cities in Florida.
Information in this column is presented by the Silicon Valley Association of Realtors at www.silvar.org