Bernanke renews push for foreclosed rentals
Rental plan could help housing imbalance, Fed chief says
Feb. 10, 2012, 2:05 p.m. EST
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — Federal Reserve Chairman Ben Bernanke on Friday made a renewed push for programs to convert foreclosed homes into rental units to help revive the housing market.
“With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties,” Bernanke said in a speech in Orlando at the National Association of Home Builders conference, according to a copy of prepared remarks. “Real-estate-owned to rental programs appear to have some potential for success.”
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The central bank chairman added that such programs could help cure the market’s current “serious” imbalances where there is a excess supply of vacant homes and an expanded rental market.
Bernanke added that there are an additional 1 million foreclosed properties could be held by banks, guarantors and servicers “in each of the next few years.” He added that the number of properties in the foreclosure process is more than four times the number of foreclosed properties owned by banks, government-seized Fannie Mae, Freddie and the Federal Housing Administration.
The number of properties suitable for rental is bound to increase, as the number of properties currently in the foreclosure process is more than four times the number of properties in the REO inventory.
The Federal Reserve is making a push to encourage banks to rent out foreclosed properties they own. Existing statutes and regulations do not prohibit financial institutions from renting out their foreclosed properties, but regulators encourage sales instead of rentals. To counter that, Bernanke recently said the agency may soon provide guidance that could encourage rentals of foreclosed properties owned by banks. Read more about Bernanke White Paper
Also, the regulator for government-seized housing giants Fannie Mae and Freddie Mac is working on a program that may employ government financing or guarantees to attract investors to buy up foreclosed properties on their books in bulk and rehabilitate and convert them into rentals.
In response to a question, Bernanke said financing was critical for these programs to work because it required the purchase of large numbers of homes within a particular geographic area, all of which is necessary to attract investors and management companies.
“Providing financing for these kind of projects, which could involve hundreds of homes, is an important direction and one in which new financing policies could be quite helpful,” Bernanke said.
He also suggested programs to create so-called “land banks,” which are typically government entities that have the ability to purchase and sell real estate. He said these land banks could buy and rehabilitate these homes and convert them into rentals. He added that these are a “promising” option but that so far existing land banks lack the resources to keep pace with the number of low-value U.S. properties.
The central bank chairman reiterated his concerns about so-called “underwater” homeowners who are current on their mortgages, but because they have little or no equity in their homes, they cannot refinance to current low interest rates.
However, he did not mention a recent Obama administration proposal that seeks to massively expand an existing program to help these underwater borrowers with little refinance.
Bernanke did suggest that policymakers could consider such a program in a Jan. 4 white paper to Congress. In response to a question after his speech Friday, Bernanke said his goal with the white paper was not to make a series of recommendations but to put out the main issues and leave it to other policy makers, Congress and administration such as the Federal Housing Finance Agency to make decisions on housing proposals.
Bernanke has come under fire for the white paper, as members of Congress argue that he was coming on their fiscal policy turf.
Bernanke’s comments come as U.S. economists at the builders show said the housing market will see a modest rebound in 2012. Given the depths to which the market fell in 2011 the recovery will not feel all that good to those in the real estate business, they say. Read about fledgling housing recovery