NEW YORK ( TheStreet) -- Mitt Romney's
plan for housing might be short on details and not very different from that of the Obama Administration, but at the very least, it suggests a continuation of policies that would keep investors on Wall Street pretty happy. Take the plan to sell 200,000 government-owned vacant foreclosed homes. The idea is not new. The Federal Housing Finance Agency -- regulator of Fannie Mae and Freddie Mac -- is already running a pilot program to sell foreclosed homes to investors who would then rent it out. But investors are already salivating at the prospect of the program being expanded further. According to analysts at KBW, institutional investors have raised between $6 billion and $8 billion in the last few months to make investments in the single-family REO (Real estate owned) market. The early entrants in the business include big private equity firms such as Blackstone ( BX), Kohlberg Kravitz Roberts ( KKR) and Oaktree Capital ( OAK), as well as mortgage REITS such as Colony Capital ( CLNY) and Two Harbors Investment ( TWO). KBW estimates that current cash returns on investments are in the 5% to 7% range, but total potential returns could reach 15% to 20% or higher, depending upon leverage and home price appreciation. Any plan to help finance bulk acquisitions of government-owned foreclosed homes would be a big win for Wall Street. It may not do much to help renters and homeowners, however. According to Jed Kolko, chief economist at Trulia, the bulk of government-owned foreclosed homes are not in the urban cities where supply of rental homes is tight, such as New York. And the program is difficult to implement in hard-hit states such as Florida, where the judicial foreclosure process means the government has less foreclosed homes to sell. The program could help homeowners in neighborhoods where there is a concentration of government-owned homes. The Romney-Ryan housing white paper released Friday cites the Government Accountability Office's finding that vacantproperties may reduce prices of nearby homes by $8,600 to $17,000 per property, so any reduction in vacancies could restore home prices in such neighborhoods. Still, its impact on the overall housing market may be muted. A Goldman Sachs report earlier this year estimated that "shifting all Fannie Mae and Freddie Mac-owned foreclosed properties to the rental market will have the effect of improving housing prices by 0.5% in the first year of the program and 1% in the second year."
The housing white paper also steered clear of other thorny issues for investors such as principal reduction and mass refinancing. It did hint at the idea of "shared appreciation", an idea that has long been proposed as a way of resolving moral hazard associated with loan modifications. Investors have argued against mass refinancing and loan modification programs because they believe it will encourage borrowers to strategically default in order to qualify for a concession. But under the shared appreciation model, borrowers will have to share the upside with the lender or investor when home values rise. The concept might now hold some promise. "Home prices are appreciating. Shared appreciation was not compelling before but it is an option that is now much more possible," said Kolko. Analysts have said that there is no single fix for housing nor is there one in which someone does not lose. But it does look like investors have more to gain from the policy ideas being floated around than middle class Americans. -- 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.