Posts Tagged ‘real estate’
Pending-home sales in March hit their highest level since April 2010, spurring the return of real-estate bidding wars. Nick Timiraos reports on The News Hub. Photo: Peter Earl McCollough for The Wall Street Journal.
Bank of America is making changes to its short sale procedures and introducing an improved task flow within the short sale technology module from Equator, BofA’s short sale management platform of choice. The goal: to reduce the timeframe for a short sale decision to less than three weeks.
Starting Saturday, April 14, real estate professionals working with BofA will be required to submit five documents for short sales initiated with an offer:
- Purchase Contract including Buyer’s Acknowledgment and Disclosure
- HUD-1
- IRS Form 4506-T
- Bank of America Short Sale Addendum, which includes the Agent Certification form
- Bank of America Third-Party Authorization Form
The acknowledgement and disclosure form, short sale addendum, and the form for third-party authorization are available through the company’s online Agent Resource Center.
The third-party authorization form is a new standardized document developed specifically for BofA. Previously, the lender accepted third-party authorization forms in differing formats and from a variety of sources when transacting a short sale.
Bank of America says it recognized a need for greater compliance and consistency with this important document and has now created its own form to standardize the third-party authorization process. The two-page document requires signed acknowledgments from all borrowers and designated representatives in a short sale. Beginning April 14, BofA will accept only the official Bank of America Third-Party Authorization Form for short sales.
The bank’s new short sale process will enable real estate agents, brokers, attorneys, and other short sale specialists involved in pre-foreclosure transactions to complete tasks such as document collection, valuations, and underwriting simultaneously.
With these steps running concurrently, the timeline from initiation to closing is reduced. In fact, Bank of America says it will now be able to provide a decision on a short sale offer in 20 days. Typically, BofA’s short sale process has taken anywhere from 45 days upwards.
In continuing to streamline the decision process, should the buyer walk away from the sale, Bank of America is giving agents five days to submit a backup offer. Previously, the backup offer window was 14 days. Interested buyers are limited to two counteroffers and will receive a response from the lender within three days.
BofA notes that all email messaging between designated selling agents and their Bank of America short sale specialist will continue to occur within the Equator system. Agents will receive a standard notice via email to log into the system and retrieve their messages.
In order to implement the myriad of changes, BofA’s Equator platform will be down for 10-12 hours the night of Friday, April 13 into the early morning of Saturday, April 14.
Real estate agents and other short sale professionals are invited to review a Bank of America webinar outlining the coming changes. BofA is also offering task-by-task training on the new Equator process via a webinar to be aired on Thursday, April 19 from 4-5 p.m. (EST). Additional information can be found through the company’s onlineAgent Resource Center.
Bank of America’s short sale and REO executive Bob Hora says the company expects short sales to continue to increase and is taking steps to ensure it is providing decisions quickly and real estate agents are alerted of status as soon as possible.
BY: CARRIE BAY, DSNEWS.COM
NEW YORK (CNNMoney) — Renting used to be cheaper than buying. But in many U.S. cities that’s no longer the case, as rents continue to climb and home prices stagnate.
While asking prices for homes declined 0.7% over the past 12 months through March, rents rose 5%, according to a report released Thursday by real estate listing site Trulia.
“Buying a home is more affordable than renting now in almost every part of the United States,” said Jed Kolko, chief economist for Trulia.
Several metro areas recorded double-digit percentage increases in rental rates.
In Sarasota, Fla., the average rent jumped 12.9% year-over-year, the biggest increase of any of the 100 largest metro areas Trulia surveyed.Miami and San Francisco saw the next biggest increases, with rent hikes of 12.1% and 11.1%, respectively.
The metro areas that sustained the highest rent increases were a decidedly mixed bag, but obviously shared one factor: rising demand for a limited supply of rental units.
The national vacancy rate for apartments fell 0.3 percentage points during the first quarter to 4.9%, its lowest point since late 2001, according to a separate report from Reis Inc., a real estate research firm. With such limited availability, it has put pressure on rentals of all types.
In cities like Miami that were hit hard by the housing bust and recorded a high number of foreclosures, all of the displaced residents have to live somewhere.
Other cities have put constraints on the construction of new multi-family housing, thereby limiting supply. For example, in San Francisco, where the median rent is a whopping $2,625, there are few tracts of land available to develop, raising demand for housing and pushing rents there higher.
Several Rust-Belt cities also saw large rent increases in the past year, including Indianapolis, where rents went up 9.7%, and Columbus, Ohio, where they jumped 9.3%.
These cities have seen big gains in the industrial sector, which have led to a growing number of jobs and higher rents, said Kolko. As hiring levels off, he does not expect the big rent increases to continue.
Meanwhile, asking prices for homes nationwide crept lower over the past 12 months, according to Trulia.
That, along with record low mortgage rates, has made buying a home more affordable than it’s ever been and a bargain compared to renting. However, many Americans will not be able to seize this historic opportunity to become homeowners, said Kolko.
Unemployed, too broke to come up with a down payment or with credit scores too battered to qualify for a mortgage, many people simply cannot qualify to buy a home right now, according to Kolko
With fewer consumers able to make the leap into homeownership, rents could continue to climb higher, he said. 
RIVERSIDE, Calif. — At least 20 times a day, Alan Hladik walks into a fixer-upper and tries to figure out if it is worth buying.
Alan Hladik, inspecting a home in California, uses an iPad to calculate the cost to renovate homes for rentals.
As an inspector for the Waypoint Real Estate Group, Mr. Hladik takes about 20 minutes to walk through each home, noting worn kitchen cabinets or missing roof tiles. The blistering pace is necessary to keep up with Waypoint’s appetite: the company, which has bought about 1,200 homes since 2008 — and is now buying five to seven a day — is an early entrant in a business that some deep-pocketed investors are betting is poised to explode.
With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes.
But the new investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends. At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.
This year, Waypoint signed a $400 million deal with GI Partners, a private equity firm in Silicon Valley. Gary Beasley, Waypoint’s managing director, says the company plans to buy 10,000 to 15,000 more homes by the end of next year. Other large private equity investors — including Colony Capital, GTIS Partners and Oaktree Capital Management, in partnership with the Carrington Holding Company — have committed millions to this new market, and Lewis Ranieri, often called the inventor of the mortgage bond, is considering it, too.
In February, the Federal Housing Finance Agency, which oversees the government-backed mortgage companies Fannie Mae and Freddie Mac, announced that it would sell about 2,500 homes in a pilot program in eight metropolitan areas, including Atlanta, Chicago and Los Angeles.
And Bank of America said in late March that it would begin testing a plan to allow homeowners facing foreclosure the chance to rent back their homes and wipe out their mortgage debt. Eventually, the bank said, it could sell the houses to investors.
Waypoint executives say they can handle large volumes because they have developed computer systems that help them make quick buying decisions and manage renovations and rentals.
“We realized that there is a tremendous amount of brain damage around acquiring single-family homes, renovating them and renting them out,” said Colin Wiel, a Waypoint co-founder. “We think this is a huge opportunity and we are going to treat it like a factory and create a production line to do this.”
Mr. Hladik, who is one of seven inspectors working full time for Waypoint’s Southern California office, is one cog in that production line.
On a recent morning, he walked through a vacant three-bedroom home with a red tiled roof here about 60 miles east of Los Angeles, one of the areas flooded with foreclosures after the housing market bust. Scribbling on a clipboard, he noted the dated bathroom vanities, the tatty family room carpet and a hole in a bedroom wall. Twenty minutes later, he plugged these details into a program on his iPad, choosing from drop-down menus to indicate the house had dual pane windows and that the kitchen appliances needed replacing.
The software calculated that it would take $25,413.53 to get the home in rental shape. Mr. Hladik adjusted that estimate down to $18,400 because he deemed the landscaping in good shape. He uploaded his report to Waypoint’s database, where appraisers and executives would use the calculations to determine whether and how much to bid for the house.
With just three years of experience, Waypoint is one of the industry’s grizzled veterans. But critics say newcomers could stumble. “It’s a very inefficient way to run a rental business,” said Steven Ricchiuto, chief economist at Mizuho Securities USA. “You could wind up with an inexperienced group owning properties that just deteriorate.”
The big investors are wooed by what they see as a vast opportunity. There are close to 650,000 foreclosed properties sitting on the books of lenders, according to RealtyTrac, a data provider. An additional 710,000 are in the foreclosure process, and according to the Mortgage Bankers Association, about 3.25 million borrowers are delinquent on their loansand in danger of losing their homes.
With so many families displaced from their homes by foreclosure, rental demand is rising. Others who might previously have bought are now unable to qualify for loans. The homeownership rate has dropped from a peak of 69.2 percent in 2004 to 66 percent at the end of 2011, according to census data.
Economists say that these investors could help stabilize home prices. “If you have a lot of foreclosures in one community you will improve everybody’s home values if you take them off the market,” said Diane Swonk, the chief economist at Mesirow Financial. “If those homes are renovated and even rented, it is a lot better than having them stand empty.”
Until now, Waypoint, which focuses on the Bay Area and Southern California, has been buying foreclosed properties one by one in courthouse auctions or through traditional real estate agents.
The company, founded by Mr. Wiel, a former Boeing engineer and software entrepreneur, and Doug Brien, a one-time N.F.L. place-kicker who had invested in apartment buildings, evaluates each purchase using data from multiple listing services, Google maps and reports from its own inspectors and appraisers.
An algorithm calculates a maximum bid for each home, taking into account the cost of renovations, the potential rent and target investment returns — right now the company averages about 8 percent per property on rental income alone. By 5:30 on a recent morning, Joe Maehler, a regional director in Waypoint’s Southern California office, had logged onto his computer and pulled up a list of about 70 foreclosed properties that were being auctioned later that day in Riverside and San Bernardino Counties.
Alan Hladlik, an inspector for Waypoint Real Estate Group, looked at a property in Riverside, Calif.
Looking at a three-bedroom bungalow in San Bernardino, he saw that Waypoint’s system had calculated a bid of $103,000. Mr. Maehler, who previously advised investors on commercial mortgage-backed securities deals, clicked on a map and saw that rents on comparable homes the company already owned could justify a higher offer. The house also had a pool, which warranted another price bump.
By the time the auctioneer opened the bidding on the lawn in front of the San Bernardino County Courthouse at $114,750, Mr. Maehler had authorized a maximum bid of just over $130,000.
As the auction proceeded, Waypoint’s bidder at the courthouse remained on the phone with Mr. Maehler in the company’s Irvine office about 50 miles away.
“Stay on it,” Mr. Maehler urged as the bidding went up in $100 increments. The bidder clinched it for $129,400.
The sting of the housing collapse, driven in part by investors who bought large bundles of securities backed by bad mortgages, makes some critics wary of the emerging market.
“I don’t have a lot of confidence that private market actors who now see another use for these houses as rentals, as opposed to owner-occupied, are necessarily going to be any more responsible financially or responsive to community needs,” said Michael Johnson, professor of public policy at the University of Massachusetts, Boston. Waypoint executives say they plan to be long-term landlords, and usually sign two-year leases. Once the company buys a property, it typically paints the house and installs new carpets, kitchen appliances and bathroom fixtures, spending an average of $20,000 to $25,000. It tries to keep existing occupants in the house — although only 10 percent have stayed so far — and offer tenants the chance to build toward a future down payment.
Waypoint’s inspectors are evaluating hundreds of properties that Fannie Mae and Freddie Mac are offering for sale. Because the inspectors are not allowed inside these homes, they are driving by 40 of them a day, estimating renovation costs by looking at eaves, windows and the conditions of lawns.
Rick Magnuson, executive managing director of GI Partners, Waypoint’s largest investment partner, said “the jury is still out” on whether Waypoint — or any other investor — can manage such a large portfolio. But, he said, “with the technology at Waypoint, we think they can get there.”
By MOTOKO RICH
Published: April 2, 2012
As real estate agents, at the end of the day, we’re in business to make money, and our bottom lines don’t discriminate. Complaints about the market changes over the past few years just make me shake my head. I like to look at change not as an obstacle, but as an opportunity. For agents, one of the biggest changes is the opportunity to make money in rentals.
Here are a few reasons I think every agent should think about taking on a few rental listings:
Big opportunities
While I’m sure it’s not “The Year of the Landlord” everywhere, when sales slow down people still need places to live. And while most agents focus on residential sales, the reality is that there are a ton of renters out there.
Here in Manhattan, our rental market is truly on fire. New York is an exceptionally rental-centric city, where about 70% of available housing is for rent. In February 2012 Citi Habitats’ research reported a vacancy rate of a mere 1.25%. In the same month, the average apartment rented for $3,376, just $18 shy of the market’s peak back in May 2007.
This trend may seem like an anomaly; however, statistics show the rental market is thriving in many markets. A recent Reuters release reported the national apartment vacancy rate is at a 10-year low.
If agents can open their minds to using their market expertise in a different way, they can take advantage of rental activity to help grow and sustain their business.
Simpler, faster transactions
While one “for sale” property can take six months to even a year to close, depending on price and market conditions, good rental agents can expect to close four, five, or even six rental transactions in a single month.
Buying or selling a home is a huge investment decision that requires a lot of paperwork and includes many interested parties; sellers, buyers, lawyers, mortgage brokers, banks, etc. If you add all of the unexpected issues that can arise and endanger a deal, rentals should be an obvious thought.
In rentals things are a lot simpler and faster. Rental deals are less complex and take less time to close because:
- you’re primarily dealing with one party, the renters, clients who likely view their move as temporary;
- most renters want to find a place as fast as possible and view renting as a small, necessary investment; and
- in many markets, landlords require minimal paperwork, just a credit check and income verification in most cases, because their objective is to fill vacancies quickly .
Future owner leads
Another great reason to consider rentals is that almost every buyer was once a renter.
Agents looking to stay in the business more than three years need to remember this. Working with someone on a rental today and letting them know you also help buy and sell property generally builds connections that can benefit you down the road.
As I said, I’m completely biased. Rentals have been good for my business. But I do think one mark of a good agent is their ability to change with market conditions, and change quickly. Diversifying your business model is key to weathering the ebbs and flows. If you cultivate strong skills in both rentals and sales, you will truly be unstoppable – no matter what’s happening in the market.
About the Author:
Caroline Bass is a Senior Vice President and Associate Broker with Citi Habitats in New York City. Recently selected as one of Forbes, “Top 30 under 30 in Real Estate” for 2011, Caroline has closed an estimated $30 million in rental deals since joining the business in 2005 and has worked with some of New York’s most high profile clients including Tim Gunn.
By Lou Carlozo
Wed Feb 15, 2012 12:05pm EST
(Reuters) – Rich Arzaga owns a luxury home in San Ramon, California, but he’s not betting on it as an investment.
The founder and CEO of Cornerstone Wealth Management, who bought the 5,000 sq. ft. property in 2005 for $1.8 million and has spent $500,000 improving it, considers the abode a wonderful place for his family. But ask him to rate his home — or any home, for that matter — as a financial investment, and Arzaga balks.
“It’s the American Dream to own a home, but whoever said that didn’t do the analysis on it,” says Arzaga, knowing he’s taking a contrarian stance to conventional wisdom.
Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, “100 percent of the time it was better to rent, rather than own.”
That’s right: 100 percent.
The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs – what’s needed to hold and maintain the asset – range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.
“I don’t have the emotions a lot of people do surrounding real estate,” Arzaga says. “I have steely eyes for how investing in real estate works, and I’d better be a prudent investor for my clients.”
Owning a dream home, he says, creates a drain on other financial priorities, causing homeowners “not to meet their financial goals. They were going to fail.”
Some real estate experts thought there was some truth to Arzaga’s argument, albeit with several conditions.
“To state that owning a home is or isn’t a good investment is too simplistic,” says Jeffrey Rogers, president and COO of Integra Realty Resources. “It depends. In times of relatively higher rents, low home values, and low interest rates, it makes sense to own a home. But in a reverse market, it wouldn’t be economically feasible. Over time, those who purchase in down or flat markets with low interest rates come out ahead.”
“Our lifetimes are a long time, and when we look over the long term, real estate and other investments tend to have a positive return,” says Jed Kolko, chief economist at Trulia.com,
a real estate search and research website. “But when it comes to real estate, changing your mind is expensive. There are a lot of costs involved in buying, selling and moving. If you move every two years, it’s probably a bad investment for you. It also depends on your job market. If you’re in a one-company town and the company goes down, there goes your job and there goes your home value.”
Greg McBride, a senior analyst at Bankrate.com, agrees with one point of Arzaga’s. “Home ownership is not so much a creator of wealth as a store of wealth,” he says. “The promise of home ownership is that over the long haul, it can rebate many or perhaps all of your costs, unlike rent, which doesn’t rebate a dime.”
The trouble, he says, is that many Americans want a home so badly, they neglect other ways to grow wealth and financial security.
“You have the other financial bases covered: emergency savings, retirement savings, paying off debt, saving for the education of your children,” McBride says. “There’s no sense in buying a home if it’s going to deplete your emergency or retirement savings.”
McBride crunched the numbers in a pre-bubble era (2004) for a home purchased at $200,000 by a buyer in the 27 percent marginal tax bracket. Factoring in a 30-year mortgage, $1,200 in annual home insurance, closing costs of $5,500 and maintenance costs of $100 a month, along with property taxes, he calculated that it would take a selling price, 10 years later, of $395,404 just to break even. His conclusion gave Arzaga’s view credence: “Homeownership may not be the moneymaker you think it is.” (See the full chart at link.reuters.com/hej66s)
Then there’s the emergency fund, a must for when a home requires unexpected repair work.
“As far as emergency savings is concerned, six months of a cushion is adequate,” McBride says. “But only 24 percent of people have that kind of cushion, and about 65 percent own homes.”
So while home ownership may sound glamorous, you need a lot of money to make it work, without much guarantee of positive returns in a post-bubble era. Indeed, Arzaga cites himself as an example of how home ownership doesn’t pay off. His residence is today worth $1.5 million, about 17 percent less than what he paid.
So why not sell? For Arzaga, it’s a lifestyle choice, and one that he doesn’t regret, since his big money-making investments are elsewhere.
(Editing by Bernadette Baum, Beth Pinsker Gladstone and Andrew Hay)
Retail sales for January enjoyed a slight gain to $401.4 billion, an uptick of 0.4 percent from the previous month, the Census Bureau reported last week. More encouragingly, this was 5.8 percent higher than January 2011, and total sales for the November 2011 through January 2012 period were up 6.3 percent from the same period a year ago.
Looking at categories, January’s retail trade sales were up 0.4 percent from December 2011 and 5.5 percent above last year. Food services and drinking establishment sales were up 8.2 percent from January 2011 and building material sales were up 8.1 percent from last year.
In fact, January retail sales pointed to growing underlying strength in the economy, given that core retail sales, which exclude auto, gasoline and building material sales, actually increased 0.7 percent, indicating increased consumption by Americans.
“[The] retail sales data are better than they look, but they don’t suggest that consumption growth is about to set the economic recovery alight,” wrote Paul Dales, an economist at Capital Economics, in a note to clients.
First-time claims for unemployment benefits placed in the week ending February 11 dropped to 348,000, a decrease of 13,000 from the previous week’s revised figure of 361,000, the Employment and Training Administration reported last week. The four-week moving average was 365,250, a decrease of 1,750 from the previous week’s revised average of 367,000.
The total number of insured unemployed workers during the week ending February 4 dropped to 3,426,000, a decrease of 100,000 from the preceding week’s revised level of 3,526,000, the Administration also reported. The four-week moving average was 3,492,500, a decrease of 8,250 from the preceding week’s revised average of 3,500,750.
Turning to real estate, building permits issued in January for construction of private housing ticked up to an annual rate of 676,000, which was 0.7 percent over December’s revised rate of 671,000, and 19 percent over the January 2011 estimate of 568,000, the Census Bureau and the Department of Housing and Urban Development reported last week. Permits for single-family homes issued in January were at a rate of 445,000; this is 0.9 percent above the revised December figure of 441,000.
Actual starts on construction of private housing initiated in January hit an annual rate of 699,000, which was 1.5 percent above December’s revised estimate of 689,000 and 9.9 percent higher than the January 2011 rate of 636,000. Starts on single-family homes in January declined to a rate of 508,000, which was 1 percent less than December’s revised rate of 513,000.
Completions of private housing in January were at a seasonally adjusted annual rate of 530,000, which was 12 percent below December’s revised estimate of 602,000, but 4.1 percent higher than the January 2011 rate of 509,000. Completions of single-family homes in January were at a rate of 389,000, which was 14.9 percent under December’s revised rate of 457,000.
Industrial production was unchanged from December to January, as a gain of 0.7 percent in manufacturing was offset by declines in mining and utilities for the month, the Federal Reserve reported last week. Looking at specific segments, the index for motor vehicles and parts jumped 6.8 percent and the index for other manufacturing industries increased 0.3 percent. The output of utilities fell 2.5 percent, as demand for heating was held down by temperatures that moved further above seasonal norms; the output of mines declined 1.8 percent.
This week sees an extremely light calendar of financial headlines due to the Presidents’ Day holiday, starting Wednesday with existing home sales for January form the National Association of REALTORS®. This is followed Thursday by initial jobless claims for last week from the Employment and Training Administration. The week closes with the University of Michigan’s consumer sentiment score for February and new home sales for January from the Census Bureau.
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — Matt Martin, CEO of Matt Martin Real Estate Management, is eagerly awaiting the introduction of a program that the Obama administration hopes will transform foreclosed properties into rehabilitated rental units and kick-start the economy.
He says he’s not alone. “There is a large chunk of capital, billions of dollars, sitting on the sidelines waiting to see what kind of program the government comes up with,” Martin said.
At issue is a Federal Housing Finance Agency push to develop a program that is expected to use government financing or guarantees to attract investors to buy up big regional or national pools of foreclosed properties currently owned by government seized housing giants Fannie Mae and Freddie Mac. The plan would be to convert these properties into rentals, a market that has strengthened recently. See story from August on foreclosure-to-rental program
Some analysts say President Barack Obama may discuss the initiative at his State of the Union Tuesday, with a focus on how to convert empty homes into productive engines of the economy. Read State of Union preview.
So far, the FHFA has received over 4,000 comments on how it should go about developing the program from a wide variety of groups including Martin and investors such as Fortress Investment Group FIG -0.14% , Chelsea Investment Corp. and the Association of Mortgage Investors.
The FHFA noted that most respondents suggested strategies that involved renting properties for some time. The agency added that many respondents “demonstrated their technical and financial capability to engage in large-scale transactions” with Fannie, Freddie and FHA.
The number of foreclosed properties is big and growing. Fannie Mae, Freddie Mac as well as the Federal Housing Administration currently have about 200,000 foreclosed properties on their books. However, Bank of America Merrill Lynch predicts that Fannie, Freddie and FHA will need to sell 3.4 million foreclosed properties in the future. Banks also have thousands of foreclosures on their books, and regulators are seeking to ease efforts to rent those out.
Federal Reserve Chairman Ben Bernanke says that as of the end of the second quarter of 2011, there were 2 million vacant homes for sale, with about 500,000 units owned by banks or the two mortgage giants.
Most observers agree that a big enough program to make a difference and bring in sufficient investors will require “seller financing” provided by or guaranteed by Fannie Mae and Freddie Mac. Regulators are working on the details and expected to release at least a pilot program shortly.
Proponents of the effort say that a strong program could transform blighted neighborhoods, boost the price of homes and stimulate the economy. However, even they agree that it will take time, and it is unclear whether policymakers can create enough incentives to entice investors to participate on a large scale.
Ralph Axel, analyst at Bank of America Merrill Lynch in New York, said the effort will not have an impact on the economy unless policymakers are successful at making it work on a grand scale.
“There are a lot of foreclosures hitting the market in the coming years, and if they can take this foreclosure supply and remove it from stagnant inventory it will help in a lot of ways, such as improving home prices overall,” Axel said.
Separately, the Federal Reserve is making a push to encourage banks to rent out foreclosed properties they own. Existing statutes and regulations do not prohibit financial institutions from renting out their foreclosed properties, but regulators encourage sales instead of rentals. To counter that, Bernanke recently said the agency may soon provide guidance that could encourage rentals of foreclosed properties. Read more on Fed’s housing white paper.
Meanwhile, numerous approaches to entice investors are under consideration for Fannie- and Freddie-owned vacant homes. One approach Axel argues regulators could consider is to have Fannie and Freddie make a loan to investors to buy and rehabilitate foreclosed properties.
Another strategy could be to have banks make loans to investors and have Fannie and Freddie guarantee those loans so that if the investors fail the banks don’t take the hit, Fannie and Freddie do. In this scenario, Axel envisions that investors will put up at least 20% of the investment cost on the property.
The properties could later be sold, after a minimum multi-year rental period, with investors potentially sharing profits with Fannie and Freddie or the government to compensate for the financing guarantee, Axel added.
Property management firms are chomping at the bit to manage new rentals picked up by investors. Rick Sharga, executive vice president of Carrington Mortgage Services, said the Santa Ana Calif.-based firm is raising money to buy foreclosed properties from Fannie and Freddie and convert them into investor-owned properties.
Currently, Carrington manages property, runs a field service group that conducts repairs and rehabilitates properties and manages rental units for about 3,000 tenants, many of whom happen to be renters in foreclosed properties owned by Fannie and Freddie. This experience, he adds, situates Carrington to manage rentals in a new program.
He said there is a delicate formula that will attract investors to buy and rehab properties. That said, he agrees that there is lots of cash on the sidelines waiting to get back in.
“You have to have adequate rental cash flow to deliver returns for investors every year, even though they are banking on long-term profit from home-price appreciation,” Sharga said.
While selling off foreclosed properties is one of Matt Martin Real Estate’s specialties, the Arlington, Va.-based firm also conducts property due diligences and manages rental units. Last year, Matt Martin sold 12,000 foreclosed homes owned by the FHA and this year he expects to sell at least 15,000.
Martin noted that there are many complications that could throw a wrench in the works. He said that many of the foreclosed properties are tied up in mortgage-backed securities, and any efforts to rent them out instead of selling them would need the approval of the trust.
Having big banks rent properties raises other problems, Martin said. Banks may struggle with the additional liabilities or risks associated with being a landlord, Martin noted. He said that even if regulators provide guidance to convince banks it’s acceptable to rent foreclosed properties they own, the institutions will have other issues.
“Does a bank want the reputational risk of turning into a landlord? Does a large servicer want that? It won’t look good if the heater goes out and dog dies,” Martin said.
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