Fed Blesses Banks' Foreclosure-Rental ... - Marshfield Real Estate

By Alan Zibel, Wall Street Journal, April 5th, 2012

The Federal Reserve set out new polices for banks that decide to rent out foreclosed homes, endorsing a strategy for managing the huge number of distressed properties that have piled up during the housing bust.

The central bank said in a six-page policy statement Thursday that the Fed?s regulations permit the rental of foreclosed properties to tenants ?in light of the extraordinary market conditions that currently prevail.? The policy clarified that banks that would otherwise be required to sell off the properties more quickly can turn to rental as a strategy.

Banks can do so ?without having to demonstrate continuous active marketing of the property provided that suitable policies and procedures are followed,? the central bank said. The shift to rentals is a significant change in the way banks deal with properties that fall into foreclosure ? if loan assistance programs don?t work.

Federal Reserve Chairman Ben Bernanke and other central bank officials have spoken publicly about the need to encourage banks to rent out foreclosures. ?With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties,? Mr. Bernanke said in a February speech.

The central bank said that banks holding large numbers of foreclosures should establish detailed policies for renting foreclosures, including a process to determine whether the properties are safe to occupy and meet local building code requirements.

The Fed said banks should set up criteria by which properties are picked to be rental properties. The banks should establish plans that ?describe the general conditions under which the organization believes a rental approach is likely to be successful,? the central bank said.

Last month, Bank of America Corp. announced a plan to allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.

In addition, Fannie Mae is selling 2,500 homes in eight metropolitan areas around the country. The government-controlled mortgage firm is selling the $320 million portfolio to investors, who would be required to turn them into rental properties.

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