The Obama administration Wednesday went searching for creative answers to a perplexing question: How can the government rid itself of the glut of foreclosed properties it now owns in a way that nudges the housing market toward recovery?
As the housing crisis has persisted, government-backed mortgage giants Fannie Mae and Freddie Mac, along with the Federal Housing Administration, have taken possession of hundreds of thousands of foreclosures throughout the country. But selling those homes at decent prices in an abysmal market has proven difficult.
That quandary led the Treasury Department, the Federal Housing Finance Agency (which oversees Fannie and Freddie) and the Department of Housing and Urban Development on Wednesday to put out a “request for information” seeking imaginative ways to clear the backlog, particularly by turning foreclosed properties into rentals.
“It’s critical that we support the process of repair and recovery in the housing market,” Treasury Secretary Timothy F. Geithner said in a statement. “Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets and support neighborhood and home price stability.”
Officials said they are hoping to identify private-sector partners that could purchase pools of foreclosed properties and turn them into rental units. If successful, the effort could help the government clear the backlog on its books, meet increasing rental demands and help relieve pressure on local housing prices.
The agencies said they expect to hear from a range of stakeholders, including financial firms, companies with property management expertise, community groups, academics and even local governments and nonprofits. They said they aren’t searching for a single, monolithic approach for the entire country, but rather solutions that make sense for individual regions with different housing challenges.
The deadline to submit ideas is Sept. 15.
The public-private partnerships “may reduce taxpayer losses” and “bring stability and liquidity to housing markets,” FHFA acting Director Edward DeMarco said in a statement.
Since taking office, President Obama has searched for ways to get the housing market back on its feet. Despite efforts to help struggling homeowners modify their loans and avoid foreclosures, the sluggish market and persistent unemployment perpetuated the stream of delinquencies and foreclosures.
Fannie and Freddie have depended on government aid since they were seized in 2008, relying on more than $150 billion in taxpayer assistance so far.
Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and a former Obama economic adviser, called the new effort a “common sense” attempt to improve the housing market.
He acknowledged that there are “legitimate concerns” about whether taxpayers might get a bad deal if the properties are sold to investors at steep discounts and whether the investors buying the foreclosures might turn out to be lousy landlords.
But Bernstein said that the government already is being forced to sell repossessed properties at low prices because of the oversupply of homes on the market, and that turning a portion into rentals could actually help alleviate downward pressure on home values. He also said the government would need to vet the new owners, require that they meet standards for maintaining the properties and make sure they are managing the rentals effectively.
“I don’t want to create the impression this is some kind of silver bullet,” Bernstein said, noting previous administration efforts that have fallen short of initial goals. “But it helps.”
One other advantage? No congressional approval needed.
“You don’t have to go through Congress, which means you might actually be able to do it,” Bernstein said. “If you like this idea, and I do, that’s the biggest upside because it means it can actually come to fruition.”