Are the rumors true that the U.S. government is going into the landlord business? Probably not, but Wall Street might.
Mortgage giants Fannie Mae and Freddie Mac, along with the Federal Housing Administration (FHA), are currently holding approximately 250,000 foreclosed homes. That’s roughly half of all unsold, repossessed properties – making the federal government the largest owner of REO (bank-owned) inventory in the country!
Plus, these government-backed agencies may soon be forced to repossess 830,000 more homes currently in some stage of foreclosure.
What’s a government to do with so many distressed properties?
Unloading them into the market would only further depress values, while damaging the fragile U.S. economy that depends on real estate stability. Holding the homes vacant leaves them vulnerable to vandalism and disrepair.
One suggested solution is for the government to mimic successful real estate investors and rent them out! Millions of former homeowners who lost their homes to foreclosure are now becoming renters and need housing. The cash flow on rental property is at all time highs so it would be a profitable business. But who will profit?
The FHFA (regulator of Fannie and Freddie) have been accepting RFI’s (Requests for Information) from the public for ideas on what to do with all the government-owned foreclosed homes.
At first glance, it sounds like the government genuinely cares about our opinion. In reality, unless you’ve got a billion bucks in your pocket and some insider handshakes, you probably won’t get to play this game.
Even if you submitted your RFI, corporations with billions of dollars will most likely win the opportunity to buy Fannie and Freddie’s inventory at rock bottom prices. In fact, it appears that the RFI process was actually set up by them.
If they get their way, investors from the private-equity and hedge fund community, like Goldman Sachs and company, will instantly become the largest land owners and landlords in the country. They will get to buy US taxpayer-owned properties in bulk for pennies on the dollar. It would be the greatest transfer of wealth from the public to the private sector if Fannie and Freddie are allowed to sell off their massive portfolio of foreclosures to private investors on Wall Street.
If the US taxpayer technically owns these properties, shouldn’t qualified U.S. citizens be the benefactors? If properties are going to be released for pennies on the dollar, shouldn’t the free market be involved in that? And, if the properties were meant to be rented, shouldn’t experienced real estate professionals handle it instead of Wall Street? We already know what happens when those guys dabble in industries they don’t understand.
It’s not too late to put up a fight. The FHFA is still reviewing the proposals and has not yet made a final decision. Members of Congress need to know they can’t get away with this without serious backlash from their constituents!
What does all this mean to real estate owners and investors?
If you are thinking that the housing crisis will continue indefinitely, think again. Obama will need to clean up the housing mess if he hopes to get re-elected next year. One way to do that is to sell off the government-owned inventory to large financial institutions who would rent them.
Another way he’s doing that is putting pressure on banks to modify loans or accept short sales.
These actions will dramatically reduce inventory, which will most-likely increase demand. More demand means higher prices, which is good for owners and sellers – not as good for buyers.
If you are a looking to buy discounted property, don’t wait just because you’re expecting future lower prices from a double dip recession in housing. Due to government interference, the opposite could be true.
By: Kathy Fettke, renowned real estate professional and host of her own radio show on KABC in LA; and Greg Uehling, property consultant in Australia.