Bernanke Wants to Lend to Real Estate Investors

NEW YORK (TheStreet) -- Federal Reserve Chairman Ben Bernanke said Friday that making loans more easily available to real estate investors for bulk purchases of homes would be an important step in resolving the imbalances in the housing and rental markets.

Speaking to home builders at the 2012 National Association of Homebuilders International Builders' Show in Orlando, Fl., Bernanke said that a program to convert foreclosed homes to rentals, while no "silver bullet" for the housing market, has potential. "With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties."

The Federal Housing Finance Agency recently introduced a pilot program to sell pools of foreclosed homes to investors. To qualify however, investors need to show that they have the financial wherewithal to acquire the assets, among other conditions.

That could be a problem, as one investor highlighted to Bernanke in the question and answer session following the speech. Investors say they have considerable trouble obtaining financing from banks if they hold more than four mortgages.

Bernanke acknowledged that the lack of financing could be a hindrance to the program. He said that the reason banks withhold lending for more than four properties dates back to when banks ran into trouble lending to investors.

The Federal Reserve chairman was referring to the savings & loan crisis of the 80s and early 90s when hundreds of savings banks collapsed following losses on commercial real estate and multi-family dwelling investments.

But that policy, he said, in today's context, was "counterproductive."

On the one hand, there was all the excess supply of foreclosed homes in the market. Investors seemed to want to buy them, so it seemed only reasonable to facilitate those purchases he said, to much applause.

Banks continued to be weighed down by foreclosed homes sitting on their balance sheets. For example, Bank of America (BAC) reported $27.7 billion worth of non-performing loans, leases and foreclosed properties sitting on its balance sheet in the fourth quarter of 2011.

More specifically, Bernanke says that the foreclosure to rental program has real potential, but for it to work, investors needed to be able to acquire properties in bulk.

"Providing financing to these projects is I think an important direction where new financing policies could be helpful," he said.

The central bank chairman spoke at length on Friday on the issues that were crippling the housing market. He had a rather dour outlook for housing in the near term, adding that the "relatively high rate of foreclosures is likely to continue for a while." He said demand for housing was also constrained, especially among young adults, because of high unemployment. "Housing may no longer be viewed as the secure investment it once was thought to be, given uncertainty about future home prices and the economy more generally."

Shares of Lennar(LEN), D.R. Horton(DHI) and Pulte Homes(PHM) were down 1.3%, 1.4% and more than 3% in afternoon trading.

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: [e-mail].

>To order reprints of this article, click here: Reprints