Government to Sell Foreclosed Homes in Bulk to Investors as Rentals

The foreclosure problem isn't going away - and it's actually about to get considerably worse. Between Freddie Mac, Fannie Mae and FHA, there are nearly 250,000 foreclosed homes currently possessed by the federal government. And there are at least two million additional homes in the foreclosure pipeline that are waiting to be processed. So the federal government, for all intents and purposes, is sitting on over two million properties in the U.S. that will need buyers.

In order to try to manage that overwhelming number of foreclosures and get them back into an active marketplace, the Obama administration and federal officials are about to announce a pilot program that would sell huge chunks of those foreclosed properties to large investors who would then rent them out to the public. The details of such a program are still to be announced, but it is believed that the government is courting buyers with the capacity to make purchases in the range of $1 billion or more for each transaction.

The idea, of course, is to move the massive foreclosure inventory through the system as quickly as possible in the hopes that doing so would stabilize the housing market as a whole. But it's unclear exactly how that scenario might play out and what the short and long-term implications might be. Getting the foreclosed homes off the books of the U.S. government would certainly be a positive, but millions of homes then sitting on the market as rentals may not be the panacea that the housing market is hoping for.

Buying foreclosed homes in such huge quantities is sure to create a fire-sale effect on the prices paid for those homes. The investors buying them would have all the leverage and their concerns would then focus primarily on managing such large numbers of properties at once. The venture seems to have the potential to be quite profitable, but not without some significant logistical hurdles. What the actual effects of such a program would be remain to be seen.