New Lender Role: Landlord?

There have been quite a few crazy ideas proposed by the Feds to help the housing market, but in the recent panic to finally DO something, the latest proposal takes the cake: make lenders landlords.

As the number of lender-owned properties continues to rise, and as lenders remain hesitant to release them to be sold (mostly for fear of what it will do to the housing market and, more selfishly, because declines in prices will not net them as much as they might get in an improved market), the fact is that we are seeing less of these properties on the market. Lenders who own hundreds or thousands of homes need to find solutions, and quickly.

One proposal is that lenders of unoccupied homes that are held by the government should rent out these properties. This idea has received both criticism and accolades.

Proponents: Those who applaud the idea say that doing so will help neighborhoods by preventing vacant homes, unkempt landscape and neglect, and vandalism. It will put people in homes, which will benefit neighbors and prevent prices from declining by withholding these properties from the sales market.

Opponents: These people claim that lenders should stay out of the rental market. First of all, they do not have the manpower to dedicate to customer service (of course they should hire property management companies, but might choose not to do so to save money). Furthermore, they claim that putting renters in these properties will not have any positive effect on the neighborhoods, as the renters may not have the same respect for the neighborhood as owners.

Twist: owners to renters: There is one possible exception that may make sense: renting the foreclosed homes back to the foreclosed homeowners. This is a good way to prevent throwing millions of people out of their homes, and will likely keep these homes in better shape, compared to letting them sit vacant or finding renters. Maybe there could be a possibility of re-purchase down the road if the homeowners can show they meet qualifications (although I doubt lenders will go for this one). This is an idea I will support.

I believe that renting out these properties is only postponing the inevitable (noting the exception for owners-to-renters). The better solution is to sell these properties off now, get rid of all the excess distressed inventory and let us move on. As I have said many times, we cannot move forward and get back on track to a “normal” housing market when there is a plethora of inventory that needs to be taken off the books. It is not until we eliminate the overwhelming inventory of distressed properties that we can see the light at the end of the recovery tunnel.