Government considers turning foreclosures into rentals

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ap
Derek Kravitz, AP Economics Writer, On Wednesday August 10, 2011, 3:25 pm EDT

WASHINGTON (AP) — The Obama administration may turn thousands of government-owned foreclosures into rental properties to help boost falling home prices.

The Federal Housing Finance Agency said Wednesday it is seeking input from investors on how to rent homes owned by government-controlled mortgage companies Fannie Mae and Freddie Mac and the Federal Housing Administration.

The U.S. government rescued Fannie and Freddie in September 2008 and has funded them since the financial crisis. The mortgage giants own or guarantee about half of the nation’s mortgages and nearly all new mortgages.

At the end of last month, the government owned roughly 248,000 foreclosed homes, officials said. About 70,000 of those are listed for sale. But officials expect the number of foreclosures to soar in the coming months.

Many foreclosures have been stalled so attorneys general and federal regulators can investigate whether lenders cut corners and improperly handled thousands of cases. Once a settlement is finalized, foreclosures are expected to pick up again and further depress home prices.

Converting the homes into rentals may reduce “credit losses and help stabilize neighborhoods and home values,” said Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

Homes in foreclosure sell at a 20 percent discount on average, which can hurt prices of surrounding homes.

It also might meet the growing demand for rentals. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard’s Joint Center for Housing Studies and The Associated Press.

A federal “request for information” released Wednesday included an option for previous homeowners to rent out the homes or for current renters to lease to own. Private investors could also be allowed to manage the rental properties.

Officials are also mulling whether to only implement the program in areas hit hardest by foreclosures and in those with high demand for rental housing, such as Arizona and Florida.

The homes include single-family homes and condominiums. The deadline for responses is Sept. 15.

Foreclosure News in California

According to Foreclosure Radar.com, foreclosures are down in California. However, the numbers are not accurate. Reasons being that many owners have vacated the property and are  not working to modify their loan or complete a short sale. It takes lenders two months longer to foreclose then it did a year ago.

The only significant increases from the prior year in ForeclosureRadar’s report were cancellations, up 141.3 percent, and time-to-foreclose, up 30.5 percent from May 2009. The company says it now takes lenders 235 days to complete a foreclosure in California, from the filing of the default notice to the auctioning of the property.

While extended foreclosure timelines may be skewing resolution numbers, it should be noted that newly initiated foreclosures declined significantly last month in California.

Notices of default filed against delinquent homeowners – the first step in the foreclosure process – fell 17.25 percent from April to May, according to ForeclosureRadar’s market data. They were down 43.34 percent compared to May 2009.

Notice of trustee sale filings, which serve as the homeowner’s final notice before the home is auctioned, dropped 11.88 percent on a month-to-month basis in May, and were 35.78 percent below year-ago levels.

ForeclosureRadar reports that banks took back 13,775 properties in May, 5.75 percent fewer than they did in April.

The company puts California’s total REO inventory at 87,964 homes, down from 90,000 in April and 18 percent lower than it was a year ago.