The nation’s two largest housing finance companies are finally changing their tune and are ready to start bulk sales of their inventoried homes to investors. Fannie Mae and Freddie Mac, who are government-sponsored enterprises, provide both loan guarantees to private sector mortgage lenders and indirect financing for the purchase of homes. As a result of those operations and the housing collapse in the U.S., they're stuck with around 250,000 foreclosed upon homes. To quickly move tens of thousands of homes off their financial books and primarily back into the rental pool, they plan to start soliciting bids for bulk purchases of homes in areas like Southern California, Atlanta, Las Vegas, Chicago, Phoenix, and parts of Florida.
This is a good thing for many reasons. First of all, it will save the taxpayers (that means you!) money. Right now, Fred and Fan are effectively owned by the U.S. government and have been bailed out by you to the tune of about $150,000,000,000.00+— and yes, that is in billions —over the past three years. This was for a variety of reasons, some of which was their fault, some the fault of Congress, some the fault of the banks, some the fault of homeowners, and some not really anyone’s fault. Regardless, the longer they hold onto these foreclosures, which cost money each month for insurance, property taxes, interest carry, vandalism, etc., the more money you and I (via the U.S. Treasury subsidizing them) lose.
Since government entities have few or no profit motives, those properties are getting slowly sold. This change, which will start the process of selling thousands of foreclosed homes to private individuals who do have a profit motive, is a move in the right direction. Investor buyers will clean up the properties, rehabilitate them, landscape the yards, then rent them out for a profit! This will also help bring more rental units back onto the rental market. In addition, some will be sold as homes to private individuals, and this will help stabilize the housing marketplace too.
There will be tens of millions of dollars spent in local economies where the foreclosures are prevalent. Between purchases at home improvement stores, money for laborers, contractors, and flooring companies, the hiring of plumbers, electricians, and more, that should provide some economic stimulus to those hard-hit areas. And most importantly, this would be economic stimulus that doesn't have to be paid for by the taxpayers. Instead, it'll be paid for by the risk-taking, profit-seeking real estate investors who buy the properties. And even if it is only a drop in the bucket, with economic multipliers and the newly renovated and occupied rental housing entering the market, that is good for everyone.
The alternative is that they sit on Fan and Fred’s books, drain the taxpayers of more money, and allow neighborhoods to flat line due to vacant houses. This alternative does nothing to help the housing crisis find a bottom market clearing price point for all homes.
By moving these houses out of the government’s hands in a quick and expedient manner, it will bring significant benefits to renters, taxpayers, local employers, and the neighbors who have to look at the eyesores devaluing their properties. But most importantly, it'll get properties back into productive uses by private parties.
These changes are just being announced by Fan and Fred this month, so let’s hope they move quickly to ramp up the program and unload all of the properties they own. This will cause some short term pain in housing prices, but remember, it will also flush out the housing system in the end and get the U.S. back on its way to a brighter housing future!
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