A government pilot program to turn bank-owned properties into rentals could be disruptive and counterproductive in some markets, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Federal Housing Finance Agency recently launched a program to sell big batches of homes repossessed by government agencies to private investors who would convert the homes into rental units.

NAR supports efforts to reduce the high inventories of foreclosures, but worries the program isn’t necessary in some areas and could even hinder the recovery.

“In many communities, [foreclosed homes] are already moving well through the normal processes, so we urge caution when proceeding with a rental program,” said NAR President Moe Veissi.

According to a recent NAR analysis, while the overall visible inventory of foreclosures has been trending down across the country, there is a noticeable difference in foreclosure inventories in states that require lenders to take the borrower to court to foreclose on a property versus inventories in states that do not require the court’s intervention.

Foreclosure inventories in states that require a hearing before a judge to foreclose are currently 2.5 times higher than in other states. In addition, foreclosed homes sell considerably faster in states where foreclosure can happen without going before a judge.

“Inventories of condos and single-family homes for sale continuously fell last year, suggesting that there is no significant oversupply of visible foreclosure inventory in the market,” said NAR Chief Economist Lawrence Yun. “Even the shadow inventories of distressed homes have fallen, though they remain elevated and are an ongoing concern. The government REO-to-rental plan could work in areas where buyers are not quickly absorbing the shadow inventory.”

To prevent further increases in foreclosure inventory, NAR has repeatedly called for improved lending to creditworthy home buyers and has urged lenders to make more loan modifications, mortgage refinancings, and short sales, which will help stabilize struggling housing markets.

“While REO-to-rental programs could be successful in a few communities, we believe that doing more to ensure mortgage availability for qualified home buyers and investors could be even more beneficial in helping absorb excess foreclosure inventories across the country,” said Veissi.

Source: NAR