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You Gotta Know When to Hold ‘Em

JUN 27, 2012 5:43pm ET
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Once the industry realized just how horrible the housing crisis was, discussions about REO-to-rental and deed-for-lease strategies became popular and the debate continues today.

It’s the socially responsible manner in which we can preserve neighborhoods, break the cycle of declining home values, and give assurances of available housing for those displaced due to foreclosure. However, there are skeptics that oppose any full-blown rental program because it’s never been done before.

Is it a viable nationwide strategy?

The facts show that we have about a four-year process to complete by slowly letting the shadow inventory enter the market, assuming that the market will stabilize in 2012. The shadow inventory is huge, consisting of approximately 700,000 loans in foreclosure, 600,000 REOs not listed for sale, 400,000 REOs on the market for sale and over 3.3 million mortgages that have had no payment activity in over 12 months.

A disorderly liquidation of these distressed assets could be a real threat to our overall economy. It may be a viable strategy to give control of these properties to investors, who can then control the speed in which housing is released back into the market. Holding these portfolios until home prices increase makes this strategy a win/win for buyers, sellers and those needing time to repair their credit.

The problems from the foreclosure crisis are continuing to mount, including lower property values, neglected repairs and code violations, impaired tax collections and unstable neighborhoods. These rental initiatives are good for business at the local level. Jobs are created as local labor is used to repair and rehabilitate homes for rent, and local talent is used for property management services.

Additionally, property taxes are paid more frequently, allowing neighborhoods to stabilize and become a safer place for its inhabitants.

According to the National Association of Home Builders, rental strategies create jobs. For every four homes that are purchased and repaired for habitability, one job is created. Extrapolate those figures out over a pool of 500,000 REOs for rent, that creates 125,000 jobs and billions of dollars in federal and local taxes.

It is important to note that REO-to-rental may not be a viable option on a national level but deed-to-lease could be adopted nationwide.

Some markets, such as Las Vegas, have a saturation of REO properties but a weak rental market. In San Francisco, the opposite market characteristics hold true, including low levels of REO assets and a very strong rental market. Garnering market color will provide the analysis of areas best suited for REO-to-rent strategies in locations such as Oakland, Denver, Chicago, Seattle, Dallas, Detroit, Houston, Minneapolis and Los Angeles.

Economists predict that while we may see the bottom of falling home values during 2012, we have a very slow recovery time ahead of us. REO rental strategies, which create jobs, cash flow and prevent further deterioration of our overall economy and housing prices may be a viable solution to our housing crisis.

Knowing when to hold ‘em and where to hold ‘em may prove to be a profitable venture sometime in the future.

The best part of this strategy is it will be executed by the private sector and not another failed attempt implemented by the government to help cure our housing crisis.

 

Diane Gozza is EVP at Integrated Mortgage Solutions, Houston.

Comments (1)
She is correct when she used the term another failed attempt, because that is what her writing is . She wants to protect the people that caused the problem and let the investors get another free ride. It seems strange to me that as long as wall-street can make money the the Govt. program is okay. We need to quit lying to the American people We are in trouble and housing will not be fixed until our country is fixed ie: jobs that pay mor than 8.00 dollars. Rental properties have never been a plus even when they are owned by local investors, one can only wonder how bad this will be with ghost owners
Posted by | Wednesday, July 11 2012 at 2:54PM ET
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