August 29, 2011
Shadow Government Inventory (So To Speak)
"Government-run Fannie Mae, Freddie Mac and the Federal Housing Administration now own about a third of the country’s nearly 800,000 foreclosed properties. With that inventory predicted to grow, they are looking for new ways to cope.
In a joint public appeal this month, the agencies invited the public to send in suggestions for managing the inventory, particularly ideas for turning foreclosed homes into rentals.
Karen Petrou, managing partner of Federal Financial Analytics Inc., said the unusual appeal is a sign the agencies recognize the backlog of distressed properties has grown so large that it can’t be sold off without inundating the market and depressing prices."
∙ U.S. Government Struggles As The Biggest Seller of Homes [SocketSite]
∙ Scheduled Auctions Flat As Pre-Foreclosure Activity Ticks Down [SocketSite]
First Published: August 29, 2011 10:30 AM
Comments from "Plugged In" Readers
Subsidised Section 8 housing.
Posted by: Sunny Jim at August 29, 2011 10:55 AM
Ummm, drop the asking price and sell them?
What kind of suggestions are they expecting? The homes are foreclosed on, take the loss and move on.
Posted by: badlydrawnbear at August 29, 2011 11:14 AM
badlydrawnbear, they can't do that. Increased distressed sales prompted by lowered asking prices would reward people who saved their money toward a substantial down payment, didn't buy a home they couldn't afford either during or on either side of the credit bubble peak, and lived frugally while renting with lower home prices once they decided to purchase.
Can't have that, it would be unamerican.
Also, it would make foreclosures owned by banks worth less once those units were on the market, worsening bank balance sheets and we can't have that either, since it might require another series of bailouts, proving that the Dodd–Frank Wall Street Reform isn't worth the paper it was printed on.
Posted by: Brahma (incensed renter) at August 29, 2011 11:27 AM
I find it ironic that many people complain about our zombie banking system yet remark that real estate has been resilient. This is resilient?
FNM and FRE back the vast preponderance of mortgage loans in this country. The private sector is not lending. If FNM and FRE were unwound, mortgage rates would likely double. Now blend this growing problem into the littany of side effects from the government "saving" housing.
They want suggestions? Issue more taxpayer-guaranteed bonds to cover your losses. When those bonds mature, refinance them. That's obviously no solution but is the most likely outcome in our current "resilient" yet unsustainable market state.
Posted by: Legacy Dude at August 29, 2011 11:30 AM
I read an article about this the other day which said something along the lines of these properties are being sold in a "closed door" fashion and is not in the public's benefit. I can't seem to find it now, did anybody else come across anything like that?
Posted by: lyqwyd at August 29, 2011 11:48 AM
One question that was being batted around in the blogosphere awhile ago is why there aren't any (or more, as in a reasonable number) of residential REITS that specialize in rental SFHs.
I haven't seen any real surveys and I haven't looked around at all recently, but it seems like the overwhelming majority of SFHs in S.F. are rented out by non-professional, sole proprietorship businesses (a.k.a. 'bootleg' landlords, lots of flippers) or owners who have property management companies rent them out on their behalf.
I used to think that the explanation was that renting an SFH just wasn't a profitable business if you did everything legally; i.e., getting permits to add a unit, hiring a licensed contractor, paying fees and taxes and getting a commercial loan to finance the property, so the people doing it were cutting one or more corners, but I genuinely don't know.
If you had a real company buying up these properties from Fannie and Freddie, the GSEs could take an equity stake and recoup at least some of the money they'd lose on each sale when the price level recovers and the properties are sold or over time from the residual rental income.
Posted by: Brahma (incensed renter) at August 29, 2011 12:35 PM
This conflict of interest is scary anytime, but especially in an election year as the economy turns down.
Posted by: ts364 at August 29, 2011 1:27 PM
Hilarious attempt at interfering with the market.
If they turn all of these into rentals, rental prices plunge.
No one can justify buying when renting is so much cheaper, so home buying demand plummets and sale prices follow.
But wait, it gets worse. People struggling to pay their mortgages realize that renting is so much cheaper and default to just go rent a place for much less $. People who needed to move and rented their homes out instead of selling them find they can't compete and default.
The government forecloses, takes these additional homes and rents them. The problem just gets worse and worse!
Short of pushing them over, there's nothing that can be done.
Posted by: tipster at August 29, 2011 3:20 PM
This is an easy one! Give ALL properties to local Community Land Trusts. The homes are then rehabbed and made super energy effcient by local companies utilizing locally trained green tech labor force. The price of the home is set at the local area median income and can only be purchased as a primary residence. The buyers purchase a move in ready home and lease the land from the Trust for 99 years. Any future sales of the home would also be tied to local median income.
As for the banks: let the eat cake. They can use all the various bailouts as icing. Not to worry, they'll soon find some other assest bubble to inflate....
There you go. I've created good paying green tech jobs. Brought new life and energy into destabalized neighborhoods. Brought stabilty to the RE markets (what a novel idea housing prices which actually reflect the income level of the buyers). Stimulated the economy and figured out how to wind down Fannie May and Freddie Mac.
Vancouver Jones for President! Although I settle for a layman's nobel prize.
Posted by: VancouverJones at August 29, 2011 3:37 PM
Brahma (incensed renter) wrote:
> I haven't seen any real surveys and I haven't looked around at
> all recently, but it seems like the overwhelming majority of SFHs
> in S.F. are rented out by non-professional, sole proprietorship
> businesses (a.k.a. 'bootleg' landlords, lots of flippers) or owners
> who have property management companies rent them out on
> their behalf.
> I used to think that the explanation was that renting an SFH just
> wasn't a profitable business if you did everything legally; i.e., getting
> permits to add a unit, hiring a licensed contractor, paying fees
> and taxes and getting a commercial loan to finance the property…
I have not heard of any large group that has been able to successfully owned and managed SFHs over a long period of time and made a profit (I have read about dozens of groups that have tried and failed).
It is hard to make a SFH cash flow and it becomes even harder if you hire someone to manage the place and hire licensed contractors to do permitted work.
Posted by: FormerAptBroker at August 29, 2011 3:59 PM
Bulldoze the entire inventory to the ground. Just think what it will do to the supply curve and the prices. The entire economy will rebound overnight.
Seriously, I love Krugman.
Posted by: unconscious at August 29, 2011 4:50 PM
Seriously, bulldozing them is the best option. If you slash the price to sell them it just results in more foreclosures as home prices plummet and more people walk away from underwater houses, compounding the problem. Similar effect, although not as drastic, with renting them. It increases supply of housing which reduces the price of housing, which reduces the value of housing.
Posted by: Rillion at August 30, 2011 10:12 AM
FormerAptBroker, thanks. It's just as I suspected.
And Rillion & unconscious, BofA is doing just that: Bank Of America Bulldozes And Gives Away Homes To Cut The Glut:
With 40,000 foreclosures burdening its books in the first quarter alone, Bank of America (BAC) will begin bulldozing and giving away abandoned homes it can't sell…“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp., which works with lenders, government officials and homeowners to salvage vacant homes. “The best thing we can do to stabilize the market is to get the garbage off.”Other large banks have similar programs, but I haven't yet seen any mention of a bay area city being targeted for inventory reduction.
Posted by: Brahma (incensed renter) at August 30, 2011 12:23 PM
the agencies invited the public to send in suggestions
is today April 1st?
seriously - here is one idea - make loan mod's and short sales easier to stop adding to your forelcosure count.
Posted by: hangemhi at August 30, 2011 5:51 PM