The federal agency that oversees Fannie Mae, Freddie Mac, and the Federal Housing Administration is experimenting with a strategy to attract large investors to buy portfolios of foreclosed homes and agree to rent them for a period of time.
In the pilot phase of that plan, Fannie Mae is offering pools of rental properties, vacant homes and bad loans with a focus on the areas of the country hardest hit by the real estate crisis. The initial transaction is expected soon.
A successful effort could do a lot to restore a normally functioning real estate market over time and that would help fix a lot of problems. Nothing is holding that market back more than an oppressive inventory of foreclosed property. And no owner of foreclosed property influences the market more than government-sponsored enterprises like Fannie Mae and Freddie Mac.
The combined portfolio of foreclosed properties available for sale by Fannie Mae, Freddie Mac, and the FHA amounted to 83,459 properties at the end of last year. That included 1,143 properties in Massachusetts. More is on the way.
Clearing that real estate faster is in nearly everyone’s interest. Creating more rental property in the process is a plus.
“I think that is a highly desirable program and hopefully those test markets will actually work out,’’ says Eric Rosengren, president of the Federal Reserve Bank of Boston. “My personal view is that [Fannie Mae and Freddie Mac] should be more focused on promoting a faster recovery in the housing market.’’
Details about the pilot program - the specific properties for sale and transaction terms - have not been disclosed. Qualified bidders were required to keep them confidential.
But when they do come out, some of those details may not be pretty. Buyers will be big investment firms and you will hear complaints about Wall Street returning to pick the bones of a crisis it helped create. The financing terms of these deals aren’t clear.
Most important, no one knows how much Fannie and Freddie will swallow when it comes to price. The political cost of eating losses can be high, at least in the short term.
