Fed Endorses Converting Foreclosed Homes to Rentals

The Federal Reserve made an unconventional foray into housing policy due to concerns that housing troubles are stifling an economic recovery.  From the January 5, 2012 Wall Street Journal:

Housing policy is outside the traditional purview of the central bank, but Fed Chairman Ben Bernanke and others are clearly worried that housing has stymied the effect of the bank’s low-interest-rate policies.

In a 26-page paper sent to top lawmakers on congressional banking committees, the Fed warned that tight mortgage- lending standards threaten to hold back the economy.

The Fed also signaled support for more aggressive use of Fannie Mae and Freddie Mac to support a housing recovery. The firms, which don’t make loans but purchase them from lenders, were taken over by the government three years ago and are overseen by a separate regulator, the Federal Housing Finance Agency, which has strictly interpreted its charge to limit the firms’ losses…

The paper endorsed converting foreclosed single-family homes into rentals in order to stem home-price declines. While housing is more affordable than at any time in the past decade in many markets, prices could sink further as banks dispose of thousands of foreclosed properties in the coming year. That has led Fed officials, the FHFA and the Obama administration to study ways to shrink the glut of bank-owned homes by selling them to investors to rent out.

The paper said some 60 metro areas had at least 250 foreclosed properties for sale by Fannie, Freddie and federal agencies—enough to efficiently execute rental programs. About two-fifths of properties held by Fannie could produce returns that justify converting them, it said.

It will be interesting to see what effect, if any, this has on lending standards and housing policies in general.