Own vs. Rent Riles Government Housing Policy

By Diana Olick, Real Estate Reporter, CNBC

NEW YORK (CNBC)-- Fannie Mae and Freddie Mac, the mortgage giants under government conservatorship, together owned 182,212 foreclosed properties as of the end of September.

While they aggressively market and sell these homes to investors and owner-occupants alike, the numbers are still too high; these number could go far higher, as foreclosures previously stalled by paperwork issues come back into process.

That's why the federal regulator overseeing the two is launching a bulk sale program, offering investors the chance to buy foreclosed properties at a discount, as long as those investors turn the properties into viable rentals for a specified number of years.

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"This rental period could provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets," according to a release from the regulator, the Federal Housing Finance Agency (FHFA).

The FHFA launched the initial phase of pre-qualification. Investors must prove they have "(a) the financial wherewithal to acquire the assets; (b) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment opportunity; and (c) agreement to keep certain information about the REO [Real Estate Owned, i.e. bank owned] and related matters confidential." That last part is to keep the prices competitive as the market starts to improve.

Giving investors the opportunity to help clear the massive amount of distress in the housing market is crucial. The inventory of foreclosed properties is large, getting larger, and making it impossible for the overall market to achieve price stability. Witness a report today from CoreLogic which shows that home prices in December fell 4.7 percent year-over-year including sales of distressed properties. Excluding those properties, home prices fell less than one percent.

Some, however, think the program is a negative:

"People are brainwashed to think foreclosures are a bad thing for the housing market. Perhaps four years ago when a million loans all went into default and foreclosure at the same time but not today. Today, first timers and investors -- with an insatiable appetite for foreclosures, REO resales, and short sales -- are the bedrock of this housing market." -- Mark Hanson, Mortgage Analyst

"Foreclosed homes are already meeting strong demand from investors when they come to market. We think these buyers are willing to pay a relatively full price, as they know the specific locations, and a large number of buyers have the ability to bid on the individual homes (doesn't require significant capital)... Additionally, it will be difficult/expensive for investors to scale up operations given the broad geographic dispersion of properties vs. more traditional rental units, potentially limiting participation." -- Dan Oppenheim, Credit-Suisse