Anatomy of a housing program

I've been rummaging around the Internet today, looking for background on the proposals President Obama included in his latest plan to levitate housing out of the cellar.

One of the most interesting was the survey by the Federal Housing Finance Agency seeking ideas for its pilot program to turn foreclosures into rentals. That program was part of Obama's Wednesday announcement.

FHFA also announced Wednesday that it was looking to pre-qualify investors for the program, which will target hardest-hit metro areas. http://goo.gl/fZH31.

You can check out the survey file for yourselves http://goo.gl/d2HvG. The participants universally supported a reasoned approach to disposal of these properties to vetted investors, giving as an example   the Resolution Trust Corp., which successfully disposed of the assets of failed savings and loans 25 years ago.

The respondents suggested the pilot program be focused  on areas hardest hit by foreclosures; that rentals be limited to a time period ending at market recovery, and that tenants be offered a chance to buy them.

Not all these properties are worth keeping. I saw foreclosed houses in Arizona in 2009 that had been stripped of appliances and trashed beyond repair. Slow-moving lenders failed to keep houses in colder climates heated during winter as well, with resulting burst pipes and water damage in the thousands of dollars.

Because there is no large financing mechanism in place for these properties to be pooled for investor purchase, most respondents said Fannie Mae and Freddie Mac should provide seller financing, at least at the beginning.

The respondents' biggest concern is that the program not be allowed to make things worse. It must ensure that investors buying these properties contribute to the recovery of foreclosure-ridden neighborhoods and that they are responsible owners with good track records of quality property management.