If they make it a condition of sale that the investors have to rent the REOs they purchase, and can’t sell them, then this idea won’t have much impact on the resale market. Selling bank-owned properties out of the shadow inventory and then designating them for rental properties means the shortage of well-priced inventory for the end buyers will continue. From HW:

While the Obama administration may be pondering the idea of helping underwater homeowners through principal write-downs, Federal Housing Finance Agency Director Edward DeMarco said there is no current consideration for principal write-downs on underwater home loans.

DeMarco told C-SPAN in an interview that the FHFA has already assisted borrowers through principal forbearance programs and loan modification tools that have helped borrowers reduce their monthly payments. He said the other balance the FHFA has to strike is making sure home aid efforts do not afflict taxpayers with additional losses since public funds hold up the quasi-federal housing agencies. He placed write-downs on principal in this camp and suggested the FHFA is not going in that direction.

“Principal forgiveness does not accomplish our conservator mandate,” DeMarco said on CSPAN while speaking to reporters from Reuters and the Wall Street Journal. He added,”the borrower still has a responsibility and an obligation for the repayment of the loan.”

DeMarco said the FHFA sees the next housing initiative being one that focuses on offloading GSE properties to investors who can buy the REO properties in bulk and turn them into rental properties.

To date, the FHFA has received 4,000 comments from interested parties who submitted feedback on the proposed REO bulk sales program.

“Now that we have the HARP announcement out, we are turning to this as the next priority,” he said.

The FHFA said earlier this month that it would lower barriers to refinancing, allowing more underwater borrowers to qualify for the government’s HARP refinancing program.

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Rick Sharga and Carrington are already jockeying for position, trying to run off competitors here.  Who ends up getting what, and for how much, should be quite a spectacle, unless it’s all done in secret, behind the usual closed doors.

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