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Repo Homes – Sell at Bargain Prices or Keep as REO Rentals?
April 22nd, 2009 by 
Joseph Smith
After Fannie Mae, Freddie Mac and most mortgage banks lifted their foreclosure moratoriums in March and pushed up their inventories of repo homes to higher levels, they are now split on whether to sell their repo homes at bargain prices or keep them as rental properties.
Fannie Mae and Freddie Mac are continuing their rental program for their repo homes despite lifting their moratoriums. According to Freddie Mac spokesperson Brad German, many homeowners can still stay in their repo homes for a time and pay their rent from month to month until the real estate foreclosed homes are sold.
In response to some housing advocates who expressed dismay when the foreclosure moratoriums ended, German said both renters and former owners can apply to the repo homes rental program. Danilo Pelletiere, research chief at the National Low Income Housing Coalition, supported German by saying that perpetual moratoriums are not effective solutions to the foreclosure problem.
However, banks are not receptive to the concept of renting out their repo homes. They reiterated they are not in the real estate management business. The lenders also argue that they should not be blamed for the neighborhood blight and nuisance caused by vacant homes. Robert Klein, chief executive of Safeguard Properties, even claimed that the mortgage service industry has been spending more than $2 billion yearly for the maintenance of vacant repo homes.
Judith Liben, a principal lawyer of the nonprofit advocacy group Massachusetts Reform Institute, said banks should consider the economic benefits of putting renters on vacant repo homes. She said vacant foreclosed homes typically lose about half of their market values before they are sold as REOs.
David Berenbaum, top executive of the National Community Reinvestment Coalition, has also criticized the way banks have been using broker price opinions (BPOs) to sell their foreclosure properties more quickly. BPOs are cheaper alternatives to full professional appraisals and are usually done by real estate brokers with minimal appraisal training. Berenbaum said the banks’ use of BPOs to sell repo homes to speculators and investors at bargain prices have been driving down home prices and overall property values.
Dean Baker of the Center for Economic and Policy Research, said encouraging mortgage lenders to consider the rental option to solve the problem of repo homes remains difficult because the lending industry is not interested in the rental business and many community advocates have not been promoting the rental option for repo homes.
