Fitch Sees Potential In REO-As-Rental Strategy

Servicers may benefit from implementing in certain hard-hit regions rental programs that keep foreclosed borrowers in the properties as tenants, Fitch Ratings says.

The rating agency released a statement this week explaining that the manner in which servicers dispose of their real estate owned (REO) assets will be a pivotal factor in the housing market for the next several years.

The timing and method of their disposition has significant implications for home prices, the agency says, noting that alternatives to traditional REO disposition strategies – such as the rental idea – have received increasing consideration since the Federal Housing Finance Agency issued its request for information (RFI) in August. The RFI inquired about ways to improve the disposition programs of Fannie Mae, Freddie Mac and the Federal Housing Administration.

According to Fitch, a strategy that allows original foreclosed borrowers to remain in homes as tenants would serve a dual purpose of reducing the inventory of distressed properties for sale and allowing borrowers to avoid the disruption of moving. The potential benefits of a rental program would likely be greatest in those areas with large numbers of distressed loans, such as Florida, Michigan and Ohio, where Fitch estimates close to 10% of all home loans are in foreclosure or REO.

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