Radar Logic plans to publish a response to the government’s proposal to sell pools of foreclosed homes to investors to rent.
Federal agencies, including the Federal Housing Finance Agency (FHFA), HUD, and the Treasury Department recently issued a Request for Information and will be accepting proposals for how best to deal with the large inventory of foreclosed homes held by Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA).
While the current thinking is that selling pools of properties to investors under the condition that they rent them for a specified period of time – thus keeping them off the market in the short-term – is ideal, federal officials are accepting alternative proposals.
In its RPX Monthly Housing Market Report for August, Radar Logic expressed concerns that selling homes in bulk to investors might negatively affect home prices in the broader market.
“[U]nless careful steps are taken to prevent it, we fear that bulk sales of REO properties could have an adverse effect on the appraised values of homes, and therefore home sales,” Radar Logic states in its report.
Radar Logic believes the REOs sold in bulk to investors will come at lower prices than if they were sold individually – prices much lower than non-distressed sales, and these low prices could lead to low appraisals for other homes on the market.
“Even if local appraisers do not use the bulk-sale properties as comps, there are many automated valuation models (AVMs) that would likely incorporate the prices of those homes unless there was some way to designate them as bulk-sale properties,” Radar Logic states in its report.
Radar Logic also expressed concern that the bulk sales would translate to large losses on Fannie Mae’s and Freddie Mac’s books – losses that ultimately would be absorbed by taxpayers.
Radar Logic will present its two-step strategy of reducing the GSEs’ REO inventory to FHFA next month.
First, Radar Logic proposes there be no more foreclosures. Instead, all distressed mortgages would be restructured.
Distressed mortgages would be replaced with bundles of debt and equity securities, which would be distributed to investors.
Secondly, the GSEs would rent their REOs through private-sector property managers. The GSEs would continue to own the properties rather than sell them to investors to rent.
