Chicago Relocation

27 Pages from the Fed

January 10, 2012

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John D’Ambrogio

Don’t worry, I don’t  expect you to read it all (but if you do.. click HERE ).  But it’s an interesting read – OK I didn’t read it all .  However, maybe I will, because it describes a possible conversion plan for REOs.  Conversion to what, you ask?  To rentals.

The Fed poses that REOs could be converted to rental on an “enterprise level.”  Currently investors simply buy what they can, where they can, and it’s difficult to efficiently buy in bulk and take advantages of certain economies of scale.

In addition, the reduced cut-rate prices that would actually attract super-bulk sales are usually too much for individual property owners to bear.  Finally, the banking regs and laws surrounding investment purchases of REOs is simply not pro-investor.

Now, remember that we’re assuming these properties are rent-able, i.e. inhabitable.  And the neighborhoods stable enough to attract renters.  Time is the enemy of the REO property.  The longer it’s on the market, the more it rides it down, and the more it runs the neighborhood and the comps down too.

The fed suggests that a “possibility is to auction to investors the rights to acquire, in a given neighborhood, a future stream of properties that meet certain standards instead of auctioning the rights to current REO holdings.”  Another option is the “possibility …to encourage deed-for-lease programs, which circumvent the REO process entirely by combining a deed-in-lieu of foreclosure – whereby the borrower returns the property to the lender – with a rent-back arrangement in which the borrower remains in the home and pays market rent to the lender.”

It’s all speculation and “white papering” at this point, but it appears the FED is taking a much closer look at this issue, and actually coming up with some compelling ideas!