A recent Los Angele Times article noted that the Obama administration announced that it was seeking ideas from investors for possible ways of managing the large number of foreclosed properties that are on the books of mortgage titans Fannie Mae and Freddie Mac. Selling foreclosed homes in bulk to investors who would then rent them out was one idea that the administration floated –- which is also part of the proposal by Morgan Stanley analysts.

In my experience selling loans in bulk equates to selling loans at a discount.  One more example of our tax dollars being squandered. 

We don’t need to sell these loans in bulk; we need to increase the buyer pool.  During the 90’s downturn, Freddie Mac and Fannie Mae offered special loan programs to qualified mom and pop investors; lower interest rates and lower down payments.  Why not do the same now?  Perhaps even a program for credit worthy investors (or owner occupants) requiring a larger down payment but easier qualifying for the self employed. 

Morgan Stanley has a plan too:  A cornerstone of their plan is helping investors who would rent out those properties. They argue that in exchange for various incentives and access to the huge glut of foreclosed homes on the balance sheets of major financial institutions, investors must agree to upgrade those homes and offer flexible terms to renters, including lease-to-own programs. They also argue that tax incentives could be used to subsidize rents for lower-income renters.

More hogwash: investors must agree to upgrade the homes.  In order to maximize rents most landlords update homes prior to renting them.  And what are flexible terms?  What does that even mean?  Lease to own programs… these have been around for years, yet I have never heard of anyone successfully completing one.  And I just bet that if these mega investors (the ones who buy these homes at a discount) do offer lease to own programs, they will demand a share of future appreciation.
 
If the lease to own program is such a good idea Perhaps Freddie Mac and Fannie Mae can take a portion of these foreclosures and sell them as lease options.  We don’t need to sell these loans at a discount to bulk sales investors.  Why not let the taxpayer share in future appreciation?



Isn’t Morgan Stanley part of the same Wall Street who fueled this mess?  Why ask for their ideas of fixing the fiasco they created? And just out of curiosity, is Morgan Stanley thinking they will broker these bulk sales and earn huge profits?  

Related posts:  The mortgage lending conspiracy
Lenders may rent foreclosures and sell later
The nature of the subprime crisis

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