High-ranking members of the House Financial Services Committee have introduced a bipartisan bill that encourages banks, Fannie Mae and Freddie Mac to rent foreclosed properties as a way to reduce REO sales and stabilize house prices and communities.
The neighborhood stabilization bill (H.R. 2636) authorizes federally chartered institutions to lease REO to renters for up to five years with an option to buy.
It also opens the door for federal institutions to do "lease-back deals with homeowners not in foreclosure," according to Federal Financial Analytics.
Such an approach allows serious delinquent borrowers to remain in their homes if they agree to pay rent and sign over the deed to the bank or GSE.
These deed-for-lease transactions create a technical foreclosure. But some estimate the hit to the bank or GSE is 30% less than a REO sale.
With a potential for 5 million foreclosures over the next 18 to 36 months, the Obama administration also is looking at renting as a way to stabilize the housing market.
Renting provides cash flow to ensure the properties are maintained and taxes are paid. In addition, the tenants have three to five years to repair their credit record and possibly buy the home.
Reps. Gary Miller, R-Calif., Spencer Bachus, R-Ala., Barney Frank, D-Mass., and Carolyn McCarthy, D-N.Y., are co-sponsoring the bill.
