Reno Tahoe Real Estate News

http://housingwire.com/article/fhfa-will-pre-qualify-investors-bulk-reo-program

Late last year, the FHFA announced an REO bulk sales initiative with the intention of stabilizing neighborhoods in some of the nation’s worst housing markets. The program allows investors to purchase large lots of homes in these areas—provided that they have the capital to rehab them and turn them into rentals.

What does this mean for the Reno/Sparks market? Well, on a surface level, it seems like a good idea. Selling the properties in bulk certainly reduces the holding costs to the owners. Banks must continue to pay taxes and maintenance fees for homes that are in their inventory—shadow or not. Politically, it seems like a winning proposition because it should reduce vacancy rates and market times hopefully leading to a faster recovery. The numbers of relocated previous homeowners are quickly exceeding the capacity of the rental markets in harder hit areas and this phenomenon is leading to extended hostile occupancy. Entities cannot foreclose, evict, value, clear title and liquidate quickly enough and, although national news sources and NAR propagandists would like to continue to spout “buyer’s market” rhetoric, there simply is not a strong influx of quality inventory in my market area. The lack of quality inventory creates a shortage of properties offered for lease and homeowners losing their homes in the foreclosure process simply have nowhere to go. Pooling some of the nations wealthier property investors and bulking out groups of homes to be held as rentals seems like a strong inclination.

On the street level, however, this is a nightmare of unwieldy proportions. To begin with, this program was admittedly (according to DeMarco’s quote in the article) created through a collaborative effort of the stakeholders. I have a brilliant idea, let’s gather a group of individuals that you would like to please, make sure that they are wealthy, powerful and politically connected, then ask them how we could use the housing crisis to best line their pockets and feed their collective interests.

Of course investors think that it is a good idea for REO properties to be yanked from fair market and sold to them bulk for a discount. Is it a surprise to anyone that they would be so generous? They avoid the typical pesky pitfalls of real estate investment like second party valuation, fair market competition, homeowner competition and market/escrow timelines. You know, those silly little details that help actual citizens in pursuit of real estate transactions and create the fair market system that our hopefully non-socialist economy is based on?

If this article refers to the non-profit organizations that I think that it does—NTSP—I am strenuously opposed to it on the onset. The Neighborhood Stabilization Program is a great news bite—use stimulus funds to purchase REO properties in low income neighborhoods, rehab them with local labor and then sell them to first time buyers with a special government backed loan program in an effort to prevent investors from purchasing the homes to use as rentals and pushing neighborhood values down with lower owner occupancy rates. Never mind the initial problem—that this program uses tax payer dollars to invest in real estate (psst, Congress, real estate is a BAD investment right now, please don’t spend my money on it) instead of infrastructure, education, or defense. But concentrate instead on the fact that property flipping should, under even the best circumstances, be done by professionals with the skills and time to make the profit margins work. Has it occurred to anyone that the government is probably not going to be very efficient at flipping homes? By the time the money trickles down through the sticky fingers of all of the management staff that has been hired to institute the programs, the cronies that they hire based on preference, not skill or experience, hand pick the properties. The rehabs are conducted with the same reckless abandon—superior pricing for sub par workmanship (aah, the government way) and the properties are liquidated through a system that spends more taxpayer funds on buyers who should be obtaining fair market loans. Did I mention that there are no plans in place to insure that these properties don’t eventually become rentals after the close date?

Selling properties in an area en mass to an investor could also create unfair practices in rent fixing. Since this kind of bulk policy will further alter the reality of the actual market – creating an artificial scarcity, it could stretch our recovery even further.

Who will regulate this? Who will guarantee that the rents are fair? What is to keep these investors from liquidating the properties with inappropriate hard money practices, taking advantage of occupants with rent-to-own schemes, or simply re-selling the properties at a profit? How much will it cost taxpayers to monitor these wealthy investors who are getting a pat on the back for altering the reality of fair markets and what is the realistic gain from a program like this?

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