Report highlights possible flaws with REO rental program

While many experts and industry stakeholders are concerned about the impact and outcome of the government's unprecedented REO bulk sales program, some have begun evaluating possible outcomes and the effect on both the single-family and multifamily markets.

A recent report from Goldman Sachs pinpointed three possible flaws in the program, Apartment Finance Today reports, which could prevent it from having the desired effect or severely reduce that effect. One possibility is that the current interest in renting will not extend to the converted properties, in which case they will remain empty. That might have some short-term benefits for home prices, but would leave the problem of excessive inventory essentially unchanged.

The second potential problem pinpointed by the report, AFT notes, is that some of these properties could be poorly located or in sufficiently poor condition that they attract no interest. Finally, the number of pending and processing foreclosures may be sufficient to replace the converted REO homes, such that there is no change in housing prices.

While most of these problems focus on the single-family market, it is possible that rental property management companies and rental owners could see changes. AFT notes that most of the REO homes tend to be concentrated in areas of relatively low interest in renting, however, and the current shortage of apartment units may counteract the effect of REO homes on rent levels.