Big Government Landlord Program Under Fire

The federal government’s new pilot program to turn bank-owned properties into rentals could be disruptive to the housing recovery — even counterproductive in some markets, according to the National Association of Realtors.

NAR has asked 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.

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 NAR Chief Economist Lawrence Yun. However, Yun continues, “The government REO-to-rental plan could work in areas where buyers are not quickly absorbing the shadow inventory.

Other concerns have been raised over the Foreclosure to Rental idea. For instance, will the properties wind up Section 8 controlled? Although the government may look to that program as a short-term solution, affordable housing can be difficult to convert it back into the private market.

Another pressing question is whether the federal government will be able to manage such a colossal undertaking. Many fear that management of individual properties will suffer under the weight of bureaucratic decision-making. As a result, the program may fall prey to fraud, scamming and overcharges, which ultimately can harm taxpayers, and may affect property values. Incorporating localized property management is viewed as a better solution.

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